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IN THE SUPREME COURT OF OHIO

JEFFREY B. SATURDAY

and

KAREN R. SATURDAY

Plaintiff-Appellant,

vs.

CITY OF CLEVELAND BOARD

OF REVIEW,

and

NASSIM M. LYNCH

Defendants-Appel Iees.

Case No: 2014-0292

On Appeal from theOhio Board of Tax Appeals

Ohio Board of Tax AppealsCase No. 2011-4027

MERIT BRIEF OF APPELLEES,

CITY OF CLEVELAND BOARD OF REVIEW AND NASSIM M. LYNCH

Barbara A. Langhenry (0038838)Director of Law

Linda L. Bickerstaff (0052101) (COUNSEL OF RECORD)

Assistant Director of Law

City of Cleveland Department of Law205 W. St. Clair AvenueCleveland, Ohio 44113

(216) 664-4406

(216) 420-8299 ( facsimile)lbickerstaff@ city.cleveland.oh.us

COUNSEL FOR APPELLEES,

CITY OF CLEVELAND BOARD OF REVIEW

AND NASSIM M. LYNCH

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TABLE OF CONTENTS

PAGE

TABLE OF AUTHORITIES .................................................................................................... vii

STATEMENT OF THE FACTS ............................................................................................ 1

ARGUMENT ........................................................................................................................ 3

Proposition of Law No. 1:

A Games-Played Apportionment Method Is Not Prohibited By R.C.

718.01(H)(10) And R.C. 718.03, This Court's Decision In Hume v. Limbach

Or Cleveland's Own Income Tax Ordinance . .................................................... 3

A. Revised Code 718.01(H)(10) and 718.03 . ................................ 3

B. This Court's Decision In Hume v. Limbach . ............................. 5

C. Cleveland's Own Income Tax Ordinance . ................................ 6


This Court Should Not Be Forced To Make Constitutional Rulings Where AParty Waives Consideration Of Nonconstitutional Error And Has ChosenThe Wrong Forum For The Action . ............................................................... 7


Municipalities Can Choose An Apportionment Method And It Need NotBe Based On Time Or Days But Can Be Based On Any Measurement SoLong As That Measurement Is Reasonable . .................................................... 9


No Court Has Ever Held That A Duty-Days Apportionment Formula MustBe Used To Apportion Income Of A Professional Athlete Or That AGames-Played Method Cannot Be Used . ......................................................... 12


Ohio Law Excepts Professional Entertainers And Athletes From The"Occasional Entrant Rule" And Permits Municipalities To Tax ThemClearly Showing That Ohio Views The Two Simiiarly . ...................................... 14

-i-

TABLE OF CONTENTS (Cont'd)


A Games-Played Apportionment Method Is Not Unreasonable Where The

Nature Of The Business Of The NFL Is Clearly Entertainment Based On The

Games And The Players . ......................................................................................

A. The Business Of The NFL: Entertainment . ..............................

B. The Entertainment Product Is The Games . .............................

C. Players Are Needed To Produce Games . .................................

D. Players Receive Share of League Revenues . ...........................

E. Players Paid For Games Not Practice . ......................................


A Games-Played Apportionment Method Is Not Unreasonable WhereContractual Documents Governing The Taxpayer's EmploymentRelationship Clearly Supports Such Method . ...................................................

A. The Player Contract, CBA And Player Pay . ..............................

1. Player Contract Shows Hired To Play Games. ...........

2. Annual Salaries Clearly Tied To Games . ......................

3. Players Receive Game Checks For Games . ...............

4. Game Play Determines Incentive Pay . ........................

5. Performance-Based Pool Based On Games . ..............

6. Post-Season Pay Tied To Games . ................................

PAG E

14

15

15

16

16

17

18

18

19

20

21

22

22

23

-11-


PAGE

B. Games Are The Bright-Line Test For Rights/Benefits. ........... 24

1. Free Agency Rights Based On Games . ........................ 24

2. Player Minimum Salary Tied To Games . ..................... 25

3. Retirement/Other Benefits Use Games . .................... 25

C. Even Player Discipline Is Based On Games . ............................ 26

D. Athletes Paid Separately For Non-Game Activities . ............... 26


The Fact That Taxpayer Did Not Play In The Cleveland Game Or EvenTravel To Cleveland For Such Game Is Irrelevant Where Taxpayer WasClearly Paid For The Game . ................................................................................. 27

A. Cleveland's Ordinance Is Broad And Clear . ............................ 27

B. Regulation Governing Taxation Of Nonresident Athletes. ,.. 28

C. Taxpayer Was Paid For The Cleveland Game . ...... .................. 29

D. Taxpayer Paid Ohio Tax For Cleveland Game . ........................ 30

E. The Irony In Taxpayer's Position . ............................................. 30


Cleveland's Taxation Of The Wages At Issue Does Not Violate The Due

Process Or Commerce Clause Since Neither Require Physical

Presence To Impose An Income Tax . ................................................................. 31


Cleveland's Taxation Of The Wages Earned For The Cleveland Game Does

Not Violate Due Process Under This Court's Test Set Forth In Angell v. City

of Toledu . ............................................................................................................... 32

-iii-


Proposition of Law No. 11:PAGE

The Toliver, VonKaenel And Miley Cases Plainly Do Not Assist TaxpayerNor Does Taxpayer's New Argument Purportedly Based On "The[S]tatutory [Text] [Of R.C. 718.011]." .................................................................. 33


Taxpayer Waived Any Dormant Commerce Clause Challenge To Games-

Played Method Having Failed To Raise The Issue As Error In His Notice Of

Appeal Or Before The Lower Tribunals . ............................................................ 35


Taxpayer Has Offered Only Allegations Asserting Violation Of TheDormant Commerce Clause And Not Evidence Of Record To Support His

New Dormant Commerce Ciause Theory. .................................................... 37


Taxpayer's Due Process And Commerce Clause Arguments Are Simply A

Disguised Attempt Of Asserting The Same Proposition-That An

Apportionment Method Must Be Based On Time Or Days . ......................... 38

A. Taxpayer's Complaint In This Case Is Clear . ............................ 39

B. Hans Rees' Sons and Norfolk & VVestern . ................................ 39

C. Substantial Evidence Exists To Support Games-PlayedMethod . ....................................................................................... 42

D. The Minimum Contacts Requirements Of Due Process. ...... 42

E. The Commerce Clause Test Of Complete Auto . ...................... 43

1. Taxpayer's Income Was Fairly Apportioned ToCleveland . ....................................................................... 44

2. The Games-Played Method Does Not Burden

Interstate Commerce . ................................................... 45

-iv-


PAGE

3. Income Apportioned Was Fairly Related ToCleveland Activities . ...................................................... 45


The Games-Played Apportionment Method's Inclusion Of Income In The

Preapportioned Tax Base Is Not Tantamount To Direct Taxation Of SuchIncome Or Extraterritorial Taxation . ..................................,............................... 47


Dividing Taxpayers Into Classes For Purposes Of Levying An Income Tax

Does Not Offend The Equal Protection Clause So Long As Any Resulting

Tax Is Levied In A Uniform Fashion . ................................................................... 48

CONCLUSION ...................................................................................................................... 50

CERTIFICATE OF SERVICE .. ...........................................................................................

APPENDIX:

Decision of the City of Cleveland Board of Review, Case No. 01-011,dated September 20, 2011 .................................................................................. 1

Decision and Order of the Ohio Board of Tax Appeals,Case No. 2011-4027, entered January 28, 2014 .............................................. 7

Cleveland Codified Ordinance 191.0318 . ......................................................... 13

Cleveland Codified Ordinance 191.0501(b)(1) ................................................. 14

Central Collection Agency Regulation 3:01(B)(5) ............................................. 16-17

Central Collection Agency Regulation 3:02 ...................................................... 17

Central Collection Agency Regulation 8:06(E)(2) ............................................ 19

Central Collection Agency Regulation 8:06(E)(3) ............................................ 19-20

Central Collection Agency Regulation 8:06(E)(6) ............................................ 20

-v-


APPENDIX:PAGE

Central Collection Agency Regulation 8:06(E)(7) ............................................. 20-21

R.C. 718.011(B) ...................................................................................................... 22

_vi_

TABLE OF AUTHORITIES

CASES

Agley v. Tracy, 87 Ohio St.3d 265, 719 N.E.2d 951 (1999) ..........................................

Amer. Foreign Serv. Ass'n v. Garfinkel, 490 U.S. 163 (1989) .......................................

American Needle, Inc. v. NFL, 538 F.3d 736, rev'd other grounds

130 S. Ct. 2201 (7th Cir. 2008) .......................................................................................

American Trucking Assn v. Schniner, 483 U.S. 266, 277 (1987) ..................................

Appeal of Carroll, No. 85A-684-SW, 1987 WL 50144 (CaI.St.Bd.Eq., Apr. 7, 1987)..

Allied-Signal, Inc. v. Director, Div of Taxation, 504 U.S. 768 (1921) ...........................

Angeli v. City of Toledo, 153 Ohio St. 179, 185 91 N.E.2d 25 (1950) ..........................

Armco, Inc, v. Hardesty, 467 U.S. 638 (1984) ................................................................

Buena v. Columbus, 170 Ohio St. 64, 162 N,E.2d 467 ..................................................

Brady v. NFL, 2011 U.S. Dist. LEXIS 44523 (D. Minn., 2011) ........................................

Campbell v. California Dept. of Corrections and Rehabilitation,463 Fed.Appx. 634 (9th Cir. 2011) ..................................................................................

Chicago Prof'l Sports Ltd. P'ship v. NBA, 95 F.3d 593 (7th Cir. 1996) .........................

Chicago Prof'l Sports Ltd. P'ship v. NBA, 754 F. Supp. 1336 (N.D. Ili., 1991) .............

Clark v. Cincinnati, 163 Ohio St. 532, 127 N.E.2d 363 (1955) ......................................

Clark v. Pompanio, 397 N.J. Super. 630, 938 A.2d 972 (App.Div. 2008) ....................

Colon Health Centers of Am., LLC v. Hazel, 733 F.3d 535 (4th Cir. 2013) ..................

Columbia Gas Transmission v. Levin,

117 Ohio St.3d 122, 882 N.E.2d 400, 2008-Ohio-511 ................................................

Commonwealth Edison Co. v. Montana, 453 U.S. 609 (1981) .....................................

PAGE

28

9

15, 16

45

12

11

32, 43

49

50

6

17

7

15

16

48, 49

7

38

37

45, 46

-VII-

TABLE OF AUTHORITIES (Cont'd)

CASES

Complete Auto Transit Inc. v. Brady, 430 U.S. 274, (1977) ..........................................

Container Corp. of Am. v. Franchise Tax Board, 463 U.S. 159 ( 1983) ........................

Cordial v. Ohio Sept. of Rehab. & Corr., No. 05AP-473, 2006-Ohio-2533 (10th Dist.)

Couchot v. State Lottery Comm'n,74 Ohio St.3d 417, 421-22, 659 N.E.2d 1225, 1228-29 ( 1996) ..................................

CSX Transp., Inc. v. Director, Div. of Taxation,22 N.J. Tax 399, 418 (N.J. Tax Ct. 2005) .........................................................................

Department of Revenue v. Davis, 553 U.S. 328 (2008) .................................................

Exxon Corp. v. Gov. of Maryland, 437 U.S. 117 (1978) .................................................

Goldberg v. Sweet, 488 U.S. 252 (1989) .........................................................................

Granholm v. Heald, 544 U.S. 460 (2005) ........................................................................

Hans Rees' Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U.S. 123 (1931) ..........

Hillenmeyer v. City of Cleveland Bd. of Review, No. 2009-3688,2014 WL 351128 (Bd. of Tax App., Jan. 14, 2014) .......................................................

Hume v. Limbach, 61 Ohio St.3d 387, 575 N.E.2d 150 (1990) .....................................

In re Bickett, DTA No. 813160, 1996 WL 54179 (N.Y.Div.Tax.App., Feb. 1, 1996) ....

International Harvester Co. v. Wisconsin Dep't of Taxation, 322 U.S. 435 (1944) ..

Kassel v. Consolidated Freightways Corp., 450 U.S. 662 (1981) ..................................

Kinsey v. Bd. of Trustees of Police & Firemen's Disability & Pension Fund of Ohio,

49 Ohio St.3d 224, 551 N.E.2d 989 (1990) ...................................................................

MCI Telecommunications v. Limbach, 68 Ohio St. 3d 195, 625 N.E.2d 597 (1994)..

Menefee v. Queen City Metro, 49 Ohio St3d 27, 550 N.E.2d 181 (1990) ..................

PAGE

43, 45

44

8

32

40

36

37

45, 46

37

39, 4041

5

3, 5, 6

13

28, 43

38

8

48-49

49

-viii-


CASES

Miley v. City of Cambridge, No. 96 CA 44,1997 Ohio App. LEXIS 3243 (5th Dist. June 25, 1997) .................................................

Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456 (1981) .....................................

Moorman Manufacturing Co. v. Blair, 437 U.S.267 (1978) .........................................

Nahas v. George, 153 Ohio St. 574, 93 N.E.2d 5 (1950) ...............................................

New Energy Co. v. Limbach, 486 U.S. 269 (1988) ..........................................................

Newman v. Franchise Tax Bd., 208 Cal.App.3d 972, 256 Cal.Rptr. 503 (1989) .........

Northfolk & Western Railway Co. v. Missouri State Tax Comm.,390 U.S. 319 (1968) ..........................................................................................................

Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450 (1959) ........

Oklahoma Tax Comm'r v. Jefferson Lines, 514 U.S. 175 (1995) ..................................

Oliver v. Cleveland Indians Baseball Co. Ltd. P'ship,

123 Ohio St.3d 278, 915 N.E.2d 1205, 2009-Ohio-5030 .............................................

Penn Central Transp. Co. v. Pub. Util. Comm.,

35 Ohio St.2d 97, 298 N.E.2d 587 (1973) ...................................:..................................

Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) .............................................................

Pro-Football, Inc. v. District of Columbia Dep't of Employment Servs,

588 A.2d 275 (D.C. 1991) ...................................................................................................

Pro-Football, Inc. v. McCants, 51 A.3d 586 (Md. 2012) ................................................

Quill Corp. v. North Dakota, 504 U.S. 298 ( 1992) .........................................................

Raymond Motor Transp., Inc. v. Rice, 434 U.S. 429 (1978) ..........................................

PAGE

33, 34

38

40, 44

8

36-37

13

39, 4041, 42

31, 42

44, 45

48

8

37, 38

17

17-18,19

31, 3239, 43

38

_iX_

TABLE OF AUTHORITIES ( Cont'd)

CASESPAGE

Shaffer v. Carter, 252 U.S. 237 (1920) ............................................................................ 31

Sheehan v. New Hampshire Dept. of Resources and Economic Development,164 N.H. 365, 55 A.3d 1031 (2012) ................................................................................ 7

Shell Oil Co. v. Iowa Department of Revenue, 488 U.S. 19 (1988) .............................. 47, 48

Smith v. Pro Football, Inc., 593 F.2d 1173, 1200 (D.C. Cir. 1978) ................................ 16

State ex rel. Black v. White, 132 Ohio St. 58, 5 N.E.2d 163 (1936) . ............................ 8

State ex rel. Glasgow v. Jones, 119 Ohio St.3d 391, 894 N.E.2d, 2008-Ohio-4788.. 7

State ex rel. Ohio Liberty Council v. Brunner,125 Ohio St.3d 315, 928 N.E.2d 410, 2010-(3hio-1845 ............................................... 7

Stemkowski v. Commissioner, 690 F.2d 40 (2nd Cir. 1982) ......................................... 12

Toliver v. City of Middletown, No. CA99-08-147,

200 WL 895261 (12th Dist., June 30, 2000) .................................................................. 33, 34

United Haulers Ass'n Inc. v. Oneida-Herkimer Solid Waste Management Auth.,550 U.S. 330 ( 2007) .......................................................................................................... 37

United States v. Pelullo, 399 F.3d 197 ( 3rd Cir. 2005) .................................................. 7

United States Football League v. National Football League,842 F.2d 1335 ( 2nd Cir. 1988) .......................................................................................... 15

VonKaenel v. City of Philadelphia, No. 2000AP-04-0041,2001 WL 81700 (5th Dist., Jan 23, 2001) .......................................:............................... 33, 34

Waltco Truck Equip. Co. v. Tallmadge Bd. of Zoning Appeals,40 Ohio St.3d 41, 531 N.E.2d 685 ( 1988) . ...........................:......................................... 8

White v. NFL, 766 F. Supp.2d 941, 951 (D. Minn., 2011) ............................................. 17

Wisconsin v. J.C. Penney, 311 U.S. 435, (1940) .............................................................. 32, 43

45

-X-


CONSTITUTIONAL PROVISIONS, STATUTES , REGULATIONS

Constitutional Provisions

Section 3, Article XVIII, Ohio Constitution .....................................................................

Ohio Revised Code

R.C. 718.01(H)(10) ............> ................................................................................................

R.C. 718.011 ........................................................................................................................

R.C. 718.011(B) ................................... ...........................................................................

R.C. 718.11 ..........................................................................................................................

R.C. 718.03 ..........................................................................................................................

R.C. 718.03(A)(2) ................................................................................................................

R.C. 718.03(A)(2)(a)-(d) .......................................... .......................................................

R.C. 5717.04 .......................................................................................................................

R.C. 5717.011(B) ...............................................................................................................

R.C. 5717.011(C) ................................................................................................................

R.C. 5747.05(A) ..................................................................................................................

Cleveland Codified Ordinances

Section 191.0318 ...............................................................................................................

Section 191.0501 .................................................................................:.............................

Section 191.0501(b)(1) ......................................................................................................

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1, 1435, 49

48

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PAGECONSITUTIONAL PROVISIONS, STATUTES , REGULATIONS

Central Collection Agency Rules And Regulations

Article 8:02(E)(2) ................................................................................................................ 11

Article 8:02(E)(3) ................................................................................................................ 11

Article 8:02(E)(6) ............................................................................................................... 11, 28

Article 8:02(E)(7) ................................................................................................................ 11

Internal Revenue Code

26 USC 3101 ....................................................................................................................... 3

26 USC 3111 ........................................................................................................................ 3

26 USC 3121(a) .................................................................................................................. 3

IRS Revenue Rulings

Rev. Rul. 2004-109, 2004 WL 2659666 ........................................................................... 47

LEGISLATION

Arn.Sub.H.B. 95, 150 Ohio Laws 629 ............:.................................................................. 2

DICTIONARIES

Black's Law Dictionary, 336 (9th ed. 2009) .................................................................... 19

LAW REVIEW ARTICLES

Kara Fratto, The Taxation of Professional U.S. Athletes in BothThe United Statesand Canada, 14 Sports Law J. 29, 42 (2007) .................................................................. 10

John DiMascio, The "Jock Tax" Fair Play or Unsportsmanlike Conduct,

68 U. Pitt. L. Rev. 953, 956 (2007) ................................................................................... 10

-XI!-


PAGELAW REVIEW ARTICLES

Jeffrey Adams, Why Come To Training Camp Out Of Shape When You Can

Work Out In the Off-Season And Lower You Taxes: The Taxation of

Professional Athletes,10 Ind. Int'I & Comp. L. Rev. 79, 99 (1991) .............................. 10

Koresky, Tax Considerations for U.S. Athletes, Performing in MultinationalTeam Sport Leagues or "You Mean I Don't Get All of My Contract Money?!,"8 Sports Law.J. 101, 114 (2001) ....................................................................................... 49

-XIII-

STATEMENT OF THE FACTS

This is the second tax refund case brought by a professional athlete that is pending

before this Court involving the city of Cleveland and its games-played apportionment method.1

At all relevant times, Jeffrey B. Saturday ("Taxpayer" or "Appellant") was a member of the

Indianapolis Colts team, of the National Football League ("NFL"). The income at issue was

attributable to a game the Colts played in Cleveland against the NFL's Cleveland Browns in

2008.

Taxpayer filed his 2008 city tax return for Cleveland tax purposes on October 15, 2009

with the Central Collection Agency ("Agency"), calculating tax due based on Cleveland's games-

played apportionment method. Tr. Exh. 1.

Later, on December 18, 2009, Taxpayer filed a second request for refund. Tr. Exh. 3.

Taxpayer's second request for refund included an attachment where he claimed that no tax was

due at all since he "was injured at the time [of the Cleveland game] [and] did not travel with

the team to Cleveland[.]" Id. at Attachment. (Supp. at 1.) Taxpayer also claimed that

Cleveland's games-played apportionment method "[was] illegal, erroneous, and

unconstitutional" and that the City must use a°`duty days' formula used by all other cities and

states." ld. Taxpayer further argued that "excluding professional athletes from the prohibition

imposed by R.C. 718.011 against municipal corporations from taxing the compensation of

nonresidents for personal services performed in the municipal corporation on twelve or fewer

days violate[d] the Equal Protection Clause[.]" Id. (Supp. at 1; 2.)

1 Also pending is Hunter T. Hillenmeyer v. City of Cleveland Board of Review and NassimM. Lynch, Case No. 2014-0235.

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After his arguments were rejected by the Agency, Taxpayer requested a Ruling from the

Agency's Tax Administrator, Nassim M. Lynch, challenging the denial of his second request for

refund. Tr. Exh. 6.

The Tax Administrator issued a Ruling on January 25, 2011, addressing the various issues

raised by Taxpayer, concluding that city tax was properly withheld and remitted in accordance

with the City's games-played apportionment method. Tr. Exh. 7.

Taxpayer appealed the Tax Administrator's Ruling to the Cleveland Board of Review

("Cleveland Board"). On September 20, 2011, the Cleveland Board issued its decision affirming

the Tax Administrator's Ruling in all respects finding that Taxpayer "supplie[d] no information

to refute the Tax Administrator's contention that [he]" "received compensation on account of

the game played in Cleveland" and that since "Taxpayer[] [] failed to submit any evidence

showing the unreasonableness of the games-played method[,]" he "failed to carry [his] burden

of proof" that the method "[s]hould [b]e [o]verturned." Cleveland Board Decision at 2; 3; 4.

(Appx. at 2; 3; 4.) The Cleveland Board also found that under city law, the game check Taxpayer

received for the Cleveland game was subject to city tax notwithstanding that Taxpayer did not

play in the game or travel to Cleveland for said the game. Id. at 4; 5. (Appx. at 4; 5.)

Taxpayer appealed to the Board of Tax Appeals ("BTA") instead of the common pleas

court.2 On January 28, 2014, the BTA issued its decision affirming the Cleveland Board. (Appx.

at 7-11.) Taxpayer filed his notice of appeal to this Court on February 25, 2014.

A party may appeal the decision of a municipal board of appeal to either the BTA or thecommon pleas court. See Ohio Rev. Code ("R.C.") 718.11; 5717.011(B). While the BTA isan optional forum such is a relatively recent option. See Am.Sub.H.B. 95, 150 Ohio Laws629, effective June 26, 2003 for tax years 2004 and thereafter. Prior to this legislation,such appeals could only be taken to the common pleas court.

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ARGUMENT


A Games-Played Apportionment Method Is Not Prohibited By R.C. 718.01(H)(10) And R.C.

718.03, This Court's Decision In Hume v. Limbach Or Cleveland's Own Income Tax Ordinance.

The BTA found that Cleveland's games-played apportion method "d[id] not operate in

contravention of any state statute or Ohio case precedent and `[wa]s a valid exercise of the

city's municipal power to tax.'" BTA Decision, slip. op. at 5 (footnote and citation omitted.)

(Appx. at 11.) Taxpayer's claim that the BTA erred in that regard is wholly without merit. See

Brief of Appellant at 12.

A. Revised Code 718.01(H)(10) and 718.03.

With respect to statutory authority, Taxpayer relies on R.C. 718.01(H)(10) and R.C.

718.03. Id. at 2; 29. R.C. 718.01(H)(10) provides that a municipal corporation shall not tax

"employee compensation that is not 'qualifying wages' as defined in Section 718.03 of the

Revised Code." Under R.C. 718.03, "qualifying wages" simply "means wages, as defined in

Section 3121(a) of the Internal Revenue Code ("IRC"), without regard to any wage limitations,

adjusted as [provided in R.C. 718.03(A)(2)(a)-(d)]." R.C. 718.03(A)(2).

"Qualifying wages" is the uniform wage base for municipal income tax purposes in Ohio.

This means that for city tax purposes, taxable wages are the wages subject to the Medicare tax

on wages imposed by the Federal Insurance Contribution Act ("FICA").3 These are the wages

26 USC 3101; 3111. The FICA payroll tax as two pieces, social security and Medicare.The Medicare tax is imposed on the full amount of IRC 3121(a) wages earned; while thesocial security portion of the tax is imposed only on wages up to a certain amount.Since R.C. 718.03 provides that qualifying wages means 3121(a) wages "without regardto any wage limitations," the municipal income tax is specifically tied to the Medicarewage base.

-3-

reported in Box 5 of the federal Form W-2. As Taxpayer notes on page 17 of his brief, under

FICA, "the term 'wages' means all remuneration for employment." 26 USC 3121(a). Here,

Taxpayer is not claiming that Cleveland is taxing wages which are not FICA wages or otherwise

excepted from tax under Ohio law (or that such wages were not reported in Box 5 of his federal

Form W-2). Therefore, any argument that Cleveland is imposing an income tax on something

that is not "qualifying wages" is disingenuous, to say the very least.

Moreover, Taxpayer's claim that "[t]he [g]ames-[p]layed [m]ethod [i]s [c]ontrary [t]o

[t]he Ohio Revised Code" is almost comical. See Brief of Appellants at 30. Taxpayer's argument

in this regard can be paraphrased as follows:

Since qualifying wages for purposes of the Ohio Revised Codemeans "wages" as that term is defined in the IRC and since"wages" under the IRC includes "all remuneration foremployment" and further since under the IRC "employment"means "any service of whatever nature performed by anemployee for the person employing him," therefore "all servicesrendered by a player are services for which he is receivingcompensation" which in turn means that Cleveland is required toconsider all duty days in apportioning a player's salary.

Id. at 2; 17; 30-31. Ohio law simply adopted the FICA wage base as the wage base to be used by

Ohio municipalities for municipal income tax purposes. How does Taxpayer's circular reasoning

based on how the Internal Revenue Code defines "employment" show that the games-played

apportionment method is contrary to Ohio law? It does not.

The fact that the BTA felt no need to address Taxpayer's specific allegations is most

telling. The BTA recognized that the issue in this case is not about whether the income is

"qualifying wages" (it clearly is) or how the Internal Revenue Code defines "employment"

(which is really irrelevant), but rather how "qualifying wages" are apportioned to Cleveland

-4-

when the nonresident is a professional athlete who earns income as a result of a game in

Cleveland.

B. This Court's Decision In Hume v. Limbach.

The BTA also held that Cleveland's games-played method "d[id] not operate in

contravention of any [] Ohio case precedent[.] BTA Decision, slip op 5. (Appx. at 11.) In that

regard, the BTA found its decision in Hillenmeyerto be controlling. BTA Decision, slip op. at 3.

(Appx. at 9.) In Hillenmeyer, the BTA found that Hume v. Limbach, 61 Ohio St. 3d 387, 575

N.E.2d 150 (1991), cited by Taxpayer, to be of "little utility," explaining that Hume

concern[ed] the allocation of compensation of a non-residentprofessional athlete for purposes of imposition of state individualincome tax. Specifically, the athlete was compensated in Ohio forservices performed outside of Ohio and the court held that suchathlete could 'allocate out of state the income for servicesperformed in Florida.' The [Supreme] [C]ourt did not, however,indicate the method by which such allocation should be made.

Hillenmeyer v. City of Cleveland Bd. of Review, No. 2009-3688, 2014 WL 351128 (Jan. 14, 2014),

slip op. at 6, n.9. (Supp. at 8.) Hume clearly did not deal with the propriety of a games-played

apportionment method and the BTA rightly concluded that nothing in that case requires an

Ohio municipality to use a particular apportionment method.

Taxpayer argues that "[w]ith respect to state income taxes, Ohio employs the duty day

method of allocating a professional athlete's income." Brief of Appellant at 3. What does that

prove? Further, it is clear that the state of Ohio does not use either allocation or

apportionment in determining what income is taxable. Instead, the state utilizes a nonresident

tax credit where the nonresident taxpayer reports all income (like residents) and the amount

attributable to work performed outside Ohio is credited against all income. R.C. 5747.05(A).

-5-

The specific issue in Hume was how to calculate the state's nonresident tax credit and this

Court ordered the BTA "to redetermine the disputed credit." 61 Ohio St.3d at 389, 575 N.E.2d

at 152. The state's nonresident tax credit is available to all nonresidents earning or receiving

compensation in Ohio not just nonresident professional athletes.

Hume clearly does not prohibit an Ohio municipality from adopting a games-played

apportionment method nor does it suggest that other apportionment methods not based on a

time or day factor cannot be used. The case simply does not assist Taxpayer as he claims.

Further, since Hume deals with the state income tax which operates quite differently than the

municipal income tax, Taxpayer is comparing apples to oranges.

C. Cleveland's Own Income Tax Ordinance.

Taxpayer's argument that "Cleveland's use of the games-played method is contrary to

the Cleveland Codified Ordinances," see Brief of Appellant at 32-33, suffers from similar

deficiencies as was discussed above with respect to R.C. 718.01(H)(10) and 718.03. As will be

demonstrated later in this brief, the language of the Cleveland Income Tax Ordinance is very

broad. The games-played apportionment method is not "contrary to" the Ordinance as

Taxpayer claims through his strained reasoning and ignorance of that fact. Moreover, the

Agency's Rules and Regulations have specifically been incorporated into the Ordinance. See

C.O. 191.0318 (°`[t]axable income' means all qualifying wages, net profits and all other income

from whatever source derived set forth in Section 191.0501 [of the Ordinance], and the Rules

and Regulations as taxable." Tr. Exh. 12 at 6; 7 (emphasis added). (Appx. at 13; 14.) An

ordinance can certainly incorporate rules and regulations and the like. Buena v. Columbus, 170

Ohio St. 64, 162 N.E.2d 467 paragraph one of the syllabus.

-6-


This Court Should Not Be Forced To Make Constitutional Rulings Where A Party WaivesConsideration Of NonConstitutional Error And Has Chosen The Wrong Forum For The Action.

One of the errors cited by Taxpayer in his Notice of Appeal to this Court is that "the BTA

acted unreasonably and unlawfully by refusing to decide whether Cleveland's method of

allocating Appellants' income on the basis of games played, rather than on the basis of total

days worked, constitutes a fair or reasonable method of apportionment." See Notice of Appeal

at $16. There is no question that the BTA stated that it "ha[d] no jurisdiction to determine the

constitutionality or reasonableness of [Cieveland's] ordinance, including its application to

athletes absent from games due to injury or illness" and made no finding in that regard. BTA

Decision, slip op. at 5 (emphasis added). (Appx. at 11.) Although Taxpayer claimed that as

error in his notice of appeal, he has clearly waived the error where he failed to assert such in his

initial merit brief. See State ex rel. Glasgow v. Jones, 119 Ohio St.3d 391, 894 N.E.2d 686, 2008-

Ohio-4788, ^26 (court need not address claim that was raised in complaint but was not

specifically argued in merit brief). See also Sheehan v. New Hampshire Dept. of Resources and

Economic Development, 164 N.H. 365, 370, 55 A.3d 1031, 1034 (2012) ("any issue raised in the

notice of appeal but not briefed is deemed waived"); accord Campbell v. California Dept. of

Corrections and Rehabilitation, 463 Fed.Appx. 634, 636 (9th Cir. 2011); United States v. Pelullo,

399 F.3d 197, 201 n.2 (3rd Cir. 2005); Clark v. Pompanio, 397 N.J. Super. 630, 634, 938 A.2d 972,

974 (App. Div. 2008). And Taxpayer certainly cannot now address the error by way of reply

brief. See State ex rel. Ohio Liberty Council v. Brunner, 125 Ohio St.3d 315, 325, 928 N.E.2d 410,

420, 2010-Ohio-1845, T61 (court need not address issue only raised in reply brief).

-7-

It is a basic principle of appellate review that this Court should avoid deciding questions

of constitutional law if a case can be decided on nonconstitutional grounds. Kinsey v. Bd. of

Trustees of Police & Firemen's Disability & Pension Fund of Ohio, 49 Ohio St.3d 224, 225, 551

N.E.2d 989, 991 (1990). An important question for the Court here is whether the constitutional

issues need be reached at all? One issue for the Court is whether it should decide

constitutional issues where a party waives consideration of nonconstitutional error which may

have decided the case? In other words, should a party benefit from waiver under these

circumstances? Another issue is whether a party who has a statutory right to select the

forum-the BTA or the common pleas court-shoulders any responsibility for choosing the

improper forum to hear the action? Clearly, "[a]n administrative agency given the authority to

hear such appeals may only act within the jurisdiction delineated by statute or code language."

Cordial v. Ohio Sept. of Rehab. & Corr., No. 05AP-473, 2006-Ohio-2553 (10th Dist.) (citing

Waltco Truck Equip. Co. v. Tallmadge Bd. of Zoning Appeals, 40 Ohio St.3d 41, 43, 531 N.E.2d

685 (1988); Penn Central Transp. Co. v. Pub. Util. Comm., 35 Ohio St.2d 97, 298 N.E.2d 587

(1973)).

While the BTA may not have jurisdiction to determine whether Cleveland's games-

played apportionment method is reasonable, a common pleas is clearly "a court of general

equity jurisdiction." See State ex rel. Black v. White, 132 Ohio St. 58, 5 N.E.2d 163, paragraph

five of the syllabus (1936); Nahas v. George, 153 Ohio St. 574, 580, 93 N.E.2d 5, 7(1950).

Between the BTA and the common pleas court, the common pleas court was clearly the

appropriate forum for the issues Taxpayer sought to raise in this appeal. For reasons only

Taxpayer can explain, he chose to file his appeal in the BTA.

-8-

Since all the issues (constitutional and nonconstitutional) in this case could have been

decided by the common pleas court, wouldn't it have been desirable to have the issues passed-

upon by the lower courts? This Court should not allow Taxpayer to force it to make

constitutional rulings that very well may have been avoided altogether or that could have been

resolved by lower courts. Amer. Foreign Serv. Ass'n v. Garfinkel, 490 U.S. 163, 161 (1989)

(cautioning that "courts should be extremely careful not to issue unnecessary constitutional

rulings[]").

fn this case, Taxpayer has clearly waived any nonconstitutional error that the games-

played apportionment method is unreasonable by failing to argue such in his initial brief. This

includes any contention that its "application to athletes absent from games due to injury or

illness" is unreasonable. This Court should find that in waiving any nonconstitutional error,

Taxpayer has also waived any constitutional claims in that regard as well.


Municipalities Can Choose An Apportionment Method And It Need Not Be Based On Time OrDays But Can Be Based On Any Measurement So Long As That Measurement Is Reasonable.

As noted, the BTA held that it could not render a determination of whether Cleveland's

games-played apportionment method for nonresident athletes is "reasonable." Decision, slip.

op. at 5. (Appx. at 11.) The Cleveland Board, however, found that "a tax provision will be

upheld so long as there is a reasonable basis for the provision" and since Taxpayer "supplie[d]

no information to refute the Tax Administrator's contention that" "the Taxpayer received

compensation on account of the game played in Cleveland[,]" "Taxpayer[] [] failed to carry [his]

burden of proof with respect to the reasonableness of the allocation of [an] athlete's income on

a games-played basis[.]'" Cleveland Board Decision at 3; 4. (Appx. at 3; 4.)

-9-

Although Taxpayer clearly appears to have knowingly and intelligently waived the issue,

it nevertheless seems clear that he would like the Court to believe Cleveland's games-played

apportionment method is not fair or reasonable. See Brief of Appellant at 1. Assuming the

Court decides to address this issue (although Appellees believe that it should not), it seems

clear that a games-played method is fair and reasonable.

Initially, it would be noted that traditionally the "duty-days" method and the "games-

played" method have been the two most commonly used methods to apportion a nonresident

professional athlete's income for tax purposes. Kara Fratto, The Taxation of Professional U.S.

Athletes in Both The United States and Canada, 14 Sports Law J. 29, 42 (2007); John DiMascio,

The "Jock Tax" Fair Play or Unsportsmanlike Conduct, 68 U. Pitt. L. Rev. 953, 956 (2007); Jeffrey

Adams, Why Come To Training Camp Out Of Shape When You Can Work Out In the Off-Season

And Lower Your Taxes: The Taxation of Professional Athletes, 10 Ind. Int'I & Comp. L. Rev. 79, 99

(1991). Under the "duty day" method, each day deemed by the particular taxing jurisdiction to

be a duty day is assigned to the jurisdiction where service is performed on that particular day.

Tax liability is determined by multiplying total compensation by a ratio, the numerator of which

. is the number of duty days allocated to the taxing jurisdiction; the denominator of which is the

total number of duty days. The "games-played" method apportions income based on the ratio

of games played in a particular jurisdiction to the total number of games played. Under this

method, total compensation is multiplied by a ratio, the numerator of which is the number of

games played in the taxing jurisdiction; the denominator of which is the total number of games.

The major flaw in Taxpayer's argument, clearly, is that an apportionment method must

be based on time or days. Under the law, no single apportionment method is required and

-10-

municipalities have wide discretion in determining what method to use. Allied-Signal, Inc. v.

Director, Div of Taxation, 504 U.S. 768, 769 (1921). An apportionment method can be based on

any measurement so long as the measurement is reasonable.

It would be noted that Cleveland (like other municipalities) utilizes apportionment

methods dealing with other classes of nonresidents that are not based on time or days. If a

nonresident salesperson is paid on a commission basis and such commissions directly depend

on the volume of business generated, Cleveland determines what amount is attributable to city

activities by multiplying the entire compensation by a fraction, the numerator of which is the

volume of business transacted in Cleveland, the denominator of which is the volume of

business transacted everywhere. See Tr. Exh. 13 at 26 (Article 8:02(E)(2)). (Appx. at 19.) If a

nonresident real estate agent is not an employee and active in Cleveland, city tax is imposed on

any income (commission or otherwise) earned as a result of a sale in Cleveland made by that

agent. See Tr. Exh. 13 at 26 (Article 8:02(E)(3)). (Appx. at 19.) In reference to nonresident

entertainers, the full amount received by the nonresident for a show or concert performed in

the City is subject to tax no matter how much they may have practiced for the performance

outside of Cleveland. See Tr. Exh. 13 at 27-28 (Article 8:02(E)(7)). (Appx. at 20-21.)

Cleveland has decided to tax professional athletes by using the games-played method.

See Tr. Exh. 13 at 27 (Article 8:02(E)(6)). (Appx. at 20.) As a home-rule charter municipality,

Cleveland can certainly exercise this prerogative. Section 3, Article XVIII, Ohio Constitution.

Said method is premised on the maxim that "players are paid to play." Unless this premise is a

fiction, the Court must recognize Cleveland's right to select the games-played apportionment

method.

-11-


No Court Has Ever Held That A Duty-Days Apportionment Formula Must Be Used To Apportion

Income Of A Professional Athlete Or That A Games-Played Method Cannot Be Used.

The Court should not be persuaded by Taxpayer's claim that by reversing the BTA it

"would avoid Ohio becoming the only jurisdiction to judicially endorse allocating professional

athlete's income on the basis of games played." Brief of Appellant at 35. Affirming the BTA's

Decision would not be a "judicial endorsement" but rather showing the proper respect for the

separation of powers and "home rule" provisions of the Ohio Constitution.

Moreover, Taxpayer's argument that "[o]utside of Cleveland, the games-played method

of allocating professional athletes' income has been uniformly rejected by courts and

administrative tax boards that have considered the issue[]" is a blatant misstatement. See id. at

33. The cases he cites clearly do not stand for such proposition, as explained below:

• Stemkowski v. Commissioner, 690 F.2d 40 (2nd Cir. 1982) - This case involved aprofessional hockey player for the New York Rangers who was a nonresidentalien. The player was a Canadian resident and played games in both Canada andthe U.S. The issue in the case was how to tax for federal income tax purposescompensation of a nonresident alien performing service both inside and outsidethe U.S. As the federal appeals court clearly explained in that case "[w]henservices are performed partly within and partly outside the U.S., butcompensation is not separately allocated, Treas. Reg. [§]1.861-4(b) (1975)allocates income to United States sources on a time basis[.]" Id. at 45 (emphasisadded). A specific IRS Treasury Regulation controlled in that case just likeCleveland's games-played regulation controls in this case.

• Appeal of Carroll, No. 85-A-684-SW, 1987 WL 50144 (Cal.St.Bd.Eq., Apr. 7, 1987)- This case involved a professional basketball player, who ironically wanted thegames-played and not the duty-days method applied to his situation. While theplayer in that case was a member of the home team, Golden State Warriors(located in California), he was a non-resident of California. The player used thegames-played method to calculate his state tax liability resulting in about 50% ofhis salary being apportioned to California. The state franchise tax boardrecalculated his tax liability on the basis of total days spent in California includingtravel days, training camp and practice sessions. The result increased the

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amount of the player's salary apportioned to California to around 71%. After thetaxpayer appealed, the state board of equalization held that the working daysformula better determined the amount of California source income and upheldthe franchise tax board's 71% assessment. Crucial to the board of equalization'sdecision was the fact that the franchise tax board had previously issued an auditrule adopting the concept of "duty days" as the basis for apportioning anonresident professional athlete's income. See id. slip op. at *3, n.2 ("AuditRuling 125.1 defines duty days for basketball players as including all days fromthe beginning of club training sessions through the last game in which the teamcompetes"). Carroll only illustrates that a duty-days method does not alwaysresult in a lower percentage of income being apportioned.

• Newman v. Franchise Tax Bd., 208 Cal.App.2d 972, 256 Cal.Rptr. 503 (1989) - Thiscase did not involve a professional athlete but rather a professional actor, thelate Paul Newman, a nonresident of California who had an exclusive 11-weekcontract to film the movie "The Sting" in California. The state franchise taxboard would determine that since Newman worked in California for 25 of the 27days that actual filming of the movie took place, 92.59% (25/27) of his incomeshould be apportioned to California. Newman would, however, convince thecourt that since the 11-week contract period encompassed 54 days (work days)and he was physically present in California on 30 of those 54 days, theapportionment to California should be 55.56% (30/54). Crucial to the court'sreasoning was (i) that the board had adopted the duty-days allocation forprofessional athletes, see id. at 978, 256 Cal.Rptr. at 506 (referring to the sameAudit Rule 125.1 discussed above), and (ii) that California law "place[d]nonresident actors in the same class as athletes." Id.

s In re Bickett, DTA No. 813160, 1996 WL 54179 (N.Y.Div.Tax.App., Feb. 1, 1996) -This case involved a professional football player for the Indianapolis Colts whocalculated his New York tax liability using the duty-days method. After theDivision of Taxation recalculated his tax liability using a games-played method,the taxpayer would appeal and win. The problem in the case was clear. TheState of New York had a "working days" apportionment method that was"consistent" with the "duty days" concept. See id., slip op. at 2. The Division ofTaxation attempted to impose the games-played method without "a shred ofevidence or argument that [the duty-days] method [was] not fair and equitable."See id. Moreover, the Division of Taxation sought to impose the games-playedmethod as a "policy" when New York apparently "authorize[d] allocation only by'resolution."' See id., slip op. at 3. The administrative decision in that case wasmade because there appeared to be an "ad hoc" application of the games-playedmethod by the Division of Taxation in that case. The same is certainly not truehere.

-13-


Ohio Law Excepts Professional Entertainers And Athletes From The "Occasional Entrant Rule"

And Permits Municipalities To Tax Them Clearly Showing That Ohio Views The Two Similarly.

Ohio law allows municipalities to tax both nonresident professional entertainers and

nonresident professional athletes in situations where other nonresidents cannot be taxed.

Generally municipalities are prohibited from taxing compensation earned by nonresidents

working in the city on 12 or fewer days in a calendar year. This is known as the "occasional

entrant rule" and is set forth in Revised Code Section 718.01 1.4 The rule, however, does not

apply to either professional entertainers or professional athletes. (Appx. at 22.)

The fact that state law exempts both professional athletes and professional entertainers

from the occasional entrant rule shows that Ohio views the two similarly. The two are similar.

Just like an entertainer travels to certain venues to perform so too do professional athletes. A

games-played method is completely rational and reasonable when one understands that

players in the NFL and other professional leagues are paid to play in games in various venues.


A Games-Played Apportionment Method Is Not Unreasonable Where The Nature Of The

Business Of The NFL Is Clearly Entertainment Based On The Games And The Players.

The nature of the business of the NFL is clearly entertainment based on the games and

the players. This clearly supports the games-played apportionment method.

Revised Code Section 718.011 provides, in pertinent part, that:... a municipal corporation shaii not tax the compensation paid toa nonresident individual for personal services performed by theindividual in the municipal corporation on twelve or fewer days ina calendar year unless ... [t]he individual is a professionalentertainer or professional athlete[.]

-14-

A. The Business Of The NFL: Entertainment.

As one federal appeals court observed, "the National Football League[] is a highly

successful entertainment product." United States Football League v. National Football League,

842 F.2d 1335 (2nd Cir. 1988). That entertainment product is NFL football which the NFL and its

32 member clubs (including the Indianapolis Colts, Taxpayer's former employer) collectively

produce. The federal appellate court in American Needle, Inc. v. NFL, 538 F.3d 736, rev'd other

grounds 130 S. Ct. 2201 (7th Cir. 2008), described how this product is produced as follows:

... [T]he product that the teams produce jointly-NFL football-requires extensive coordination and integration between theteams. After all, NFL football is produced only when two teamsplay a football game. Thus, although each team is a separatecorporate entity or partnership unto itself, no team can produce agame-the product of NFL football-by itself, much less a fullseason of games or the Super Bowl. Likewise, the teams'individual success is necessarily linked to the success of the leagueas a whole; to put it another way, it makes little difference if ateam wins the Super Bowl if no one cares about the Super Bowl.(Emphasis added.)

Id. at 737. See also Chicago Prof'l Sports Ltd. P'ship v. NBA, 95 F.3d 593, 598-599 (7th Cir. 1996)

(A sports league "produces a single product; cooperation is essential (a league with one team

would be like one hand clapping)"). It simply cannot legitimately be disputed that first and

foremost, the NFL and other sports leagues are entertainment

B. The Entertainment Product Is The Games.

As stated above, "NFL football is produced only when two teams play a football game."

538 F.3d at 737. The entertainment product produced by the NFL is plainly the "games." The

NFL and teams make money from the games. The teams make money from gate receipts and

concession sales at the games. The NFL and teams make money by selling (for lucrative sums)

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television and other broadcast rights to the games. "All regular season NFL games are

produced for network television [and] every NFL game is televised every week[.]" Chicago

Prof'l Sports Ltd. P'ship v. NBA, 754 F. Supp. 1336, 1343 (N.D. III., 1991). The games are so

lucrative that the NFL now televise some of the games on its own cable television network.

C. Players Are Needed To Produce Games.

Just like "no team can produce a game-the product of NFL football-by itself,"

(American Needle, 538 F.3d at 737), no football game can be produced without players.

Consequently, there is a strong market for individuals who can play at the NFL level and fierce

competition between teams for such individuals. Only the very best college football players are

allowed to join the professional ranks so as to "assure the quality and attractiveness of [the]

games." Smith v. Pro Football, Inc., 593 F.2d 1173, 1200 (D.C. Cir. 1978) (MacKinnon, J.,

concurring in part and dissenting in part). So important are the players that the NFL clubs have

combined to create an annual draft for the selection of players. Tr. Exh. 9 at 46-50, Article XVI,

"College Draft." And prior to the draft, an important event is held each year in Indianapolis,

Indiana known as the "NFL Scouting Combine" where college players audition and showcase

their abilities to the teams. NFL Scouting Combine, http://www.nfl.com/combine/workouts

( last accessed July 22, 2014).

Players are clearly needed for the games and are vital to the success of the NFL.

D. Players Receive Share of League Revenues.

Players share revenue with the NFL. See Tr. Exh. 9 at 82-144, Article XXIV, "Guaranteed

League-Wide Salary, Salary Cap, & Minimum Team Salary.'° As one court recently observed

"[b]roadcast contracts [alone] are an enormous source of shared revenue for the players and

-16-

the NFL." White v. NFL, 766 F. Supp.2d 941, 951 (D. Minn., 2011). Under the collective

bargaining agreement at issue in this case, players were provided with approximately 50% of all

NFL revenues after deduction of approximately $1 billion in expenses. Brady v. NFL, 2011 U.S.

Dist. LEXIS 44523, at *19 ( D. Minn., Apr. 25, 2011).

E. Players Paid For Games Not Practice.

While Pro-Football, Inc. v. District of Columbia Dep't ojFErrrployment Servs, is not a tax

case, it clearly recognizes the fact that players are paid for the games. 588 A.2d 275 (D.C.

1991). The issue in that case was whether Washington, D.C.'s workers compensation act

covered players of the NFL Washington Redskins where the majority of the players' time was

spent at their practice facility in Virginia and not D.C. where the games were played. The

appeals court found that the D.C. act was applicable explaining as follows:

the principal service for which a player is hired by the Redskins isto play regularly scheduled games and earn money for the team.In the final analysis, professional athletes are entertainers. Just asan actor's rehearsals are ancillary to his performance on thestage, so a professional athlete's practice is merely preparatory tothe game. Id.

In a more recent workers compensation case, another court of appeals would agree with that

rational, explaining its position as follows:

The purpose of a football player's employment with a professionalfootball team is to play in professional football games. It is not, as [theteam] seemingly contends, to practice. Football practice is a means to anend-better performance in football games-it is not an end unto itself.Put another way, professional football organizations do not sign "skilledfootball players" so those players can lift weights and watch game file.The players are signed, and required to attend practice [], so they canperform well in games to achieve wins and earn revenue for the team.The nature of a football player's employment, then, is defined by thegames in which he participates, not the admittedly important, yetnonetheless ancillary practices he attends.

-17-

Pro-Football, Inc. v. McCants, 51 A.3d 586, 595-96 (Md. 2012).

Much like professional entertainers, professional athletes including professional football

players are paid to perform before others; "practice is merely preparatory to the games."

Professional athletes are clearly paid for the games; they are not paid to practice

although practice might certainly assist to prepare them for the games.


A Games-Played Apportionment Method Is Not Unreasonable Where Contractual DocumentsGoverning The Taxpayer's Employment Relationship Clearly Supports Such Method.

While Taxpayer attempted to rely on the contractual relationship between the NFL and

its players as a reason to require use of a duty-days apportionment method, said contractual

relationship clearly supports a games-played method. Not only is player compensation tied to

the games so too is every single important right or benefit that a player may be entitled to

receive. Even player discipline is based on the games.

A. The Player Contract, CBA And Player Pay.

All NFL players including Taxpayer must enter into a uniform standard NFL Player

Contract, the form of which is incorporated in and governed by the Collective Bargaining

Agreement ("CBA°') between the players' union and the NFL. It would be noted that in addition

to the Player Contract, the CBA has specific provisions dealing with player pay as well. The

contractual arrangement between the NFL and its players clearly show that players are hired to

play games and that player compensation is based on the games whether one is talking about a

player's annual salary, incentive pay provided for in the Player Contract, performance-based

pay provided under the CBA or post-season pay.

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1. Player Contract Shows Hired To Play Games.

Section 2 of the NFL Player Contract titled "EMPLOYMENT AND SER!/ICES" begins by

noting that the player is being employed "as a skilled football player." Tr. Exh. 9 at 248

(emphasis added). (Supp. at 68.) Section 2 goes on to state that:

Player will report promptly for and participate fully in Club'sofficial mandatory minicamp(s), official preseason training camp,all Club meetings and practice sessions, and all preseason, regularseason and postseason football games scheduled for or by Club[.]

Id. This is the language Taxpayer relies on to claim that a duty days apportionment method

must be used. This language, however, is merely a condition of employment and not a promise

of the Contract.5 See Pro-Football v. McCants, 51 A.3d at 595-96. Section 2 ends by stating: "if

invited, Player will practice for and play in any all-star game sponsored by the League. Player

will not participate in any football game not sponsored by the League unless the game is first

approved by the League." /d. This language too is merely a condition of employment although

the prohibition against participating in non-League football games is most telling.

Section 3 of the NFL Player Contract provides, in pertinent part, that: "Player represents

that he has special, exceptional and unique knowledge, skill, ability, and experience as a football

player[.]" Tr. Exh. 9 at 248. ( emphasis added). (Supp. at 68.) So Taxpayer was not only hired in

the first instance as a"skilled football player," he makes representations attesting to such.

Section 11 of the NFL Player Contract provides that the "contract may be terminated if,

in the Club's opinion, Player is anticipated to make less of a contribution to Club's ability to

A"condition of employment" is defined as follows: "A qualification or circumstancerequired for obtaining or keeping a job." Blacks Law Dictionary, 336 (9th ed. 2009).Here, this language simply means that if the player accepts the Club's job offer, thensuch player must accept the training and practice on the Club's terms.

-19-

compete on the playing field than another player or players[.]" Id. at 252 (emphasis added).

(Supp. at 72.) That language alerts a player to the fact that his ability to compete on the playing

field is what is most important.

So while Taxpayer argues that all non-game activities are just as important as playing

games, his Player Contract certainly shows otherwise. A player's ability to compete on the

playing field is clearly what counts and what the player was hired to do.

2. Annual Salaries Clearly Tied To Games.

All Player Contracts, including Taxpayer's, call for a salary during the regular season.

This amount is referred to as the "Paragraph 5 salary" in the CBA. Tr. Exh. 9 at 250. (Supp. at

70.) It's called the "Paragraph 5 salary" simply because it appears in Section 5 of every Player

Contract. Section 6 of the Player Contract provides how the "Paragraph 5 salary" shall be paid

and states as follows:

Section 6. Payment. *** Player will be paid 100% of his yearlysalary under this contract in equal weekly or biweeklyinstallments over the course of the applicable regular seasonperiod, commencing with the first regular season game played byClub in each season. Unless this contract specifically providesotherwise, if this contract is executed or Player is activated afterthe beginning of the regular season, the yearly salary payable toPlayer will be reduced proportionately and Player will be paid theweekly or biweekly portions of his yearly salary becoming due andpayable after he is activated. Unless this contract specificallyprovides otherwise, if this contract is terminated after thebeginning of the regular season, the yearly salary payable toPlayer will be reduced proportionately and Player will be paid theweekly or bi[]week(y portions of his yearly salary having becomedue and payable up to the time of termination.

Id.

As set forth above, players receive their annual salary in equal installments during the

regular season. If a contract is signed after the regular season begins or if a player is activated

-20-

after the regular season begins, salary is proportionately reduced to the number of regular

season weeks rernaining.6 Further, if a player contract is terminated after the regular season

begins, salary is proportionately reduced by the number of weeks remaining in the regular

season. A player's salary is clearly tied to the games.

Provisions in the CBA also show that the player salaries are tied to the games. Article

XXXVIII of the CBA is titled "Salaries" (Tr. Exh. 9 at 179-182) and states, in pertinent part:

Section 10. Payment: Unless agreed upon otherwise betweenthe Club and the player, each player will be paid at the rate of100% of his salary in equal weekly or bi-weekly installments overthe course of the regular season commencing with the firstregular season game. ...

Tr. Exh. 9 at 180. (Supp. at 53.) Likewise, Article XIV in the CBA is titled "NFL Player Contract"

(Tr.Exh. 9 at 40-44) and Section 9 concerns salary forfeitures. It provides that while no signing

bonus forfeitures are permitted, the players and Club may agree (among other things) to forfeit

the proportionate amount of a player's signing bonus allocation for each week missed (1/17th

for each regular season week missed) if the player voluntarily retires or otherwise withholds

services from one or more regular season games. Tr. Exh. 9 at 43, Section 9. (Supp. at 21-22.)

The forfeiture is 1/17th because the Paragraph 5 contract salary is paid in equal installments

during the 17 week regular season-16 games plus one bye week for each team.

3. Players Receive Game Checks For Games.

Every sports fan has heard the term "game checks." The term is commonly referred to

in the media when describing fines levied against suspended players for various on-field or off-

The word weeks versus games is used as a matter of administrative convenience sinceeach team has one bye week where the team does not play but contract salary will bepaid.

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field infractions. The term is also used in the CBA. As an illustration, Section 3(b) of Article

XXIII, dealing with "Termination Pay," states, in pertinent part, as follows:

A player shall not be eligible for Termination Pay if, withoutmissing a game check at the Paragraph 5 rate stated in histerminated contract, he signs a Player Contract with the sameClub that terminated his contract, which new contract providesfor Paragraph 5 salary at a rate equal to or greater than that of histerminated contract. ...

Tr. Exh. 9 at 81. (Supp. at 37.) The players are well aware that the paychecks used to pay the

Paragraph 5 salary are known as "game checks."

4. Game Play Determines Incentive Pay.

In addition to a player's yearly salary (the Paragraph 5 salary), a Player Contract may

contain incentive clauses. Incentive clauses are quite common in NFL Player Contracts and are

performance-based bonuses that the player can earn. These incentive bonuses can be based

on a player's individual performance' or the player's team performance.8 A player clearly

reaches these goals, whether team or individual, based on his or his team's performance in the

games-not practices, not meetings, not promotional events or anything else.

5. Performance-Based Pool Based On Games.

In addition to an incentive clause that a player might have in his own contract, Article

XXXVIII-B of the CBA titled "Performance-Based Pool" provides for another type of

performance-based pay that players can receive. How the "Performance-Based Pool" operates

also supports the games-played method. Tr. Exh. 9 at 188-189. (Supp. at 56-57.)

For example, a bonus for individual performance might be given to an offensive playersuch as a running back based on his total yards rushing. Tr. Exh. 9 at 112. (Supp. at 42.)For example, a bonus may be given to a player based on the number of team wins. Tr.Exh. 9 at 111. (Supp. at 41.)

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The "Performance-Based Pool" is a pay pool or fund created by the CBA itself, and not

the Player Contract. The fund consists of more than $100 million and is distributed in its

entirety at the end of the season to the players. Tr. Exh. 9 at 188, Sections 2; 3. (Supp. at 56.)

A player must play at least one snap (a down) in a regular season game to be eligible to

participate in the fund. Tr. Exh. 9 at 188, Section 4. (Supp. at 56.) Like incentive bonuses,

whether a player receives this performance-based pay is determined by his playing time on the

playing field during games-not practices, not meetings, not promotional events or anything

else.9 Section 5 of the Article describes how payment from the pool is determined based on a

formula that compares the player's playing time in regular season games (playtime percentage)

to his compensation. Tr. Exh. 9 at 188-189. (Supp. 56-57.) Playtime percentage is based on the

player's total plays on offense or defense plus special team play in regular season games

divided by the teams' total offense or defense plus special team plays in regular season games.

Tr. Exh. 9 at 188-189. (Supp. at 56-57.) How the "Performance-Based Pool" operates under the

CBA-paying only for actual time spent on the playing field during games, supports the games-

played method as well.

6. Post-Season Pay Tied To Games.

Just like the player's pay during the regular season supports the games-played method,

so too does their pay in the post-season.

Article XLII of the CBA is titled "Post-Season Pay." Tr. Exh. 9 at 194-195. (Supp. at 58-

59.) Under the Article, only players whose team makes the playoffs are even eligible to receive

Indeed, the Pool appears to be mainly designed to reward players whose salary may notbe commensurate with their performance on the playing field.

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"post-season pay." Tr. Exh. 9 at 194-195, Sections 3-5. ( Supp. at 58-59.) How much a player

receives will depend on how far their team advances during the playoffs since the player will

receive a certain amount for each post-season game played. Tr. Exh. 9 at 194, Section 2. (Supp.

at 58.) Players are only paid playoff money for each game played during the post-season. Also,

as it is well known, during the first week of the playoffs four of the teams participating in the

playoffs (the top two teams in each conference) have a bye week. The players on these four

teams are not paid during the bye week although they certainly are practicing, attending

meetings, promotional events, etc. Players are clearly paid to play.

B. Games Are The Bright-Line Test For Rights/Benefits.

As noted, in addition to the player's compensation being tied to the games, so too is

every single important right or benefit that a player might be entitled to receive.

1. Free Agency Rights Based On Games.

Free agency is probably one of the most important rights for the players since it is about

money, specifically about the players' ability to shop for teams and more money. Under the

CBA, a player's rights in regard to free agency depend on how may "Accrued Seasons" the

player has. The more accrued seasons the player has the more rights he has in that regard

(restricted versus unrestricted free agent). Tr. Exh. 9 at 56, Article XVIII, "Veterans With Less

Than Three Accrued Seasons." (Supp. at 23.) Tr. Exh. 9 at 57-67, Article XIX, "Veteran Free

Agency." (Supp. at 24-34.) What are accrued seasons based on? Accrued seasons are based on

one thing games-not practices, not meetings, not promotional events or anything else. Under

the CBA, a player achieves an accrued season for each season he was on, or should have been

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on "full pay status" for a total of 6 or more regular season games. Tr. Exh. 9 at 56, Section 1(a).

(Supp. at 23.)

2. Player Minimum Salary Tied To Games.

NFL players are also entitled to receive a minimum salary under the CBA. Article XXXVIII,

"Salaries." Tr. Exh. 9 at 179-182. (Supp. at 52-55.) A player's minimum salary is based on what

is termed "Credited Season" under the CBA. Tr. Exh. 9 at 180, Section 7. (Supp. at 53.) The

more credited seasons the player has the higher is his minimum salary. Tr. Exh. 9 at 179,

Section 6. (Supp. at 52-53.) What are credited seasons based on? Credited seasons are based

on one thing games-not practices, not meetings, not promotional events or anything else.

Under the CBA, for purposes of player minimum salaries, a player achieves a credited season

for each season he was on, or should have been on, full pay status for a total of 3 or more

regular season games. Tr. Exh. 9 at 180, Section 7. (Supp. at 53.)

3. Retirement/Other Benefits Use Games.

The player's retirement plan and a host of other benefits such as "waiver rights,"

"termination pay;" °'severance pay;" "right to participate in a retirement savings plan;" an

"annuity program" and "tuition assistance" is also based on "Credited Seasons." Tr. Exh. 9 at

79-80 (waiver rights); 81 (termination pay); 221-222; (severance pay); 206-207 (retirement

savings plan); 208-209 (annuity program); 210-211 ( tuition assistance). (Supp at 35-37; 60-67.)

The more credited seasons a player has the greater are his rights in regard to all these benefits.

Although the definition of "credited seasons" for purposes of these benefits is different than

the definition of "credited seasons" for purposes of player minimum salary (discussed above),

the definition is still based on one thing games-not practices, not meetings, not promotional

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events or anything else. Instead of 3 or more regular season games, this definition of "Credited

Season" is found in the Bert Belle/Pete Rozelle NFL Player Retirement Plan which defines it as 3

or more regular or post-season games. Tr. Exh. 10 at 3-4, Section 1.10.) (Supp. at 80-81.)

C. Even Player Discipline Is Based On Games.

Not only are the player's rights and benefits tied to games, so too is disciplinary action.

Player discipline is covered under two Articles in the CBA-team discipline under Article VIII and

commissioner discipline under Article XI. Tr. Exh. 9 at 19-22; 34-35. (Supp. at 12-17.) The

maximum team sanction that a player can receive is forfeiting one game check (Paragraph 5

payment) and/or a suspension of four games/weeks without pay. Tr. Exh. 9 at 19, Section 1(a).

(Supp. at 12-13.) The Commissioner is not so limited and has been known to suspend players

without pay for much longer periods of time. Players are suspended without pay from games-

not practices, not meetings, not promotional events or anything else. The NFL's "Policy on

Anabolic Steroids and Related Substances" clearly illustrates this point as well-players who

test positive for a banned substance are suspended from games-not practices, not meeting,

not promotional events or anything else. Tr. Exh. 11. (Supp. 82-88.)

D. Athletes Paid Separately For Non-Game Activities.

Finally, it is clear that players are paid separately for off-season work-outs, minicamps

and pre-season training camp.

Article XXXV of the CBA deals with "off-season workouts;" Article XXXVI covers

minicamps; while Article XXXVII addresses "pre-season training camps." Tr. Exh. 9 at 172; 176

and 177. Players receive payment under these Articles for attendance, meal allowances, travel

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expenses, housing and salary per diem payments which are separate and apart from the

player's Paragraph 5 contract salary paid during the regular season. (Supp at 45-51.)

Since players are paid before the regular season even begins for pre-season training

camp (and off-season workouts and minicamps) why would they be paid again for the same

services during the regular season?

The fact that the players are paid separate and apart for these activities disproves

Taxpayer's claim that a player's overall compensation as a football player is equally for all

services performed under the Player Contract. Further, the fact that the payment for these

activities is nominal in comparison to the player's Paragraph 5 salary again shows that players

are paid to play games.


The Fact That Taxpayer Did Not Play In The Cleveland Game Or Even Travel To Cleveland For

Such Game Is Irrelevant Where Taxpayer Was Clearly Paid For The Game.

Taxpayer seeks to avoid the required conclusion that he was properly subject to

Cleveland tax by reiterating that he "did not travel to nor perform any services in Cleveland."

Brief of Appellant. Appellant's Notice of Appeal. That Taxpayer did not play in the Cleveland

game or travel to Cleveland for the Cleveland game is completely irrelevant since he was clearly

paid for such game.

A. Cleveland's Ordinance Is Broad and Clear.

The City's Income Tax Ordinance is clear. With regard to nonresidents, Section

191.0501(b)(1) provides that city tax shall be imposed:

On all qualifying wages, earned and/or received on and afterJanuary 1, 1967, by nonresidents of the City for work done orservices performed or rendered within the City or attributable to

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the City; on all net profits earned and/or received by anonresident from the operation or conduct of any business orprofession within the City; and on all other taxable income earnedand/or received by a nonresident derived from or attributable tosources, events or transactions within the City.

Tr. Exh. 12 at 5 (emphasis added). (Appx. at 14.) Under this provision, Cleveland taxes all

qualifying wages "earned and/or received" for'"work done or services performed or rendered

within the City." Cleveland also taxes qualifying wages "earned and/or received that is

"attributable to the City."l0 Moreover, the third part of the ordinance requires Cleveland to tax

"ali other taxable income" "earned and/or received" "from or attributable to sources, events or

transactions within the City."

As shown, Cleveland's Ordinance is more broadly defined than Taxpayer would have

one believe and levies tax based on income earned in the City which does not require

Taxpayer's physical presence. lnternational Harvester Co. v. Wisconsin Dep't of Taxation, 322

U.S.435 (1944) ( nonresidents are taxable so long as they receive income that relates to an in-

state transaction or event). See also Agley v. Tracy, 87 Ohio St.3d 265, 719 N.E.2d 951 (1999).

B. Regulation Governing Taxation Of Nonresident Athletes.

As the BTA noted, the Agency's "Rules and Regulations along with the income tax

ordinances govern income tax matters" for Cleveland "and [are] [] incorporated *** into its

Income Tax Ordinance." BTA Decision, slip op. at 4, n.3. (Appx. at 10.) CCA Article 8:02(E)(6)

sets forth the apportionment formula which captures "the entire amount of compensation

earned for games that occur in the taxing community[]" and provides for the inclusion of

10 The "work done or services performed" language only pertains to the first situation (notthis second one).

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"incentive payments, signing bonuses, reporting bonuses, incentive bonuses, roster bonuses

and other extras." The Article clearly levies tax on a nonresident professional athlete for any

compensation attributable to a game in Cleveland.

And as the BTA noted, this Article also provides that city tax is imposed even if the

player "was excused from playing because of injury or illness." BTA Decision, slip op. at 4.

(Appx. at 10.). The BTA was clearly right to rely on such in finding that Taxpayer "was taxed as if

he had taken a 'sick day' for the [Cleveland] game."" Id. (Appx. at 10.)

C. Taxpayer Was Paid For The Cleveland Game.

Taxpayer clearly had a contractual right to be paid for the game in Cleveland despite any

injury. Section 9 of Taxpayer's Player Contract (and all other NFL player contracts) deals with

player injury and states that "if Player is injured in the performance of his services under this

contract *** Player *** will continue to receive his yearly salary[.]" Tr. Exh. 9 at 251 ("NFL

Player Contract"). (Supp. at 71.) So although injured, Taxpayer was clearly entitled to receive

his yearly salary. Taxpayer also had the right to be paid for the Cleveland game despite having

been placed on the Indianapolis Colts' "inactive list°° for the Cleveland game. Tr. Exh. 8 at 1.

(Supp. at 89.) Under Taxpayer's CBA, inactive list players receive the same benefits and

protections as active list players. Tr. Exh. 9 at 169 (Article XXXIII, "Squad Size," Section 3).

(Supp. at 44.) So just like the active list players received a game check for the Cleveland game,

so too did Taxpayer even though he may not have traveled to Cleveland for that game.

When a nonresident working in the City takes a sick day, that nonresident remainssubject to Cleveland tax for the sick pay earned and/or received even though thenonresident is not physically present in the City on that sick day. The same is true forvacation days, personal time-off, etc.

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In short, Taxpayer was on full pay status for the Cleveland game. While Taxpayer would

like this Court to believe that he was paid a game check for "rehabilitation activities for the

Colts," brief of Appellants at 1, and not the Cleveland game-that is simply ridiculous. Taxpayer

received compensation on account of the game played in Cleveland. This explains why his

employer, the Indianapolis Colts, withheld and remitted city tax on those wages in accordance

with Cleveland's Codified Ordinances.

D. Taxpayer Paid Ohio Tax For Cleveland Game.

An obvious flaw in Taxpayer's argument is shown by the fact that he was clearly subject-

to Ohio state income tax for the Cleveland game. Taxpayer's Form W-2 shows that from the

same wages that his employer, the Indianapolis Colts, withheld and remitted city tax, it also

withheld and remitted state income tax to the State of Ohio. See Tr. Exh. 1 (Taxpayers' filed

2008 tax return). In fact, Taxpayer even concedes such on page 10 of his brief stating that his

"W-2 reflect[s] that approximately 1.24% of [his] income was allocated to Ohio" under the

duty-day method. If the wages from the Cleveland game were subject to Ohio income tax, why

would those same wages not be subject to city tax?

E. The Irony In Taxpayer's Position.

As noted, players on the inactive list receive the same benefits and rights as active list

players under Taxpayer's CBA. And just like the active list players received game credit for the

Cleveland game in terms of achieving an accrued and credited season for the 2008 League Year

for purposes of free agency, player minimum salary, retirement and a host of other benefits like

termination pay, severance pay, etc., so too did Taxpayer all without traveling to Cleveland for

said game. The irony in Taxpayer's position is evident.

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Cleveland's Taxation Of The Wages At Issue Does Not Violate The Due Process Or Commerce

Clause Since Neither Require Physical Presence To Impose An Income Tax.

In his brief, Taxpayer claims that "Cleveland's taxation of [his] wages is unconstitutional"

"[b]ecause [he] performed no services in Cleveland" and that therefore "taxation of his wages

violates the Due Process and the Commerce Clause." Brief of Appellant at 18. Taxpayer would

like one to believe that physical presence is required to impose an income tax. However,

neither due process nor the commerce clause requires physical presence to impose an income

tax on wages earned and/or received by a nonresident.

It is clear that there are two theoretical underpinnings of a state's (or municipality's)

jurisdiction to tax income: residence and source. The source-of-income principle was first

approved by the United States Supreme Court in Shaffer v. Carter, 252 U.S. 237 ( 1920) where

the Court held that a state may constitutionally tax the income of nonresidents derived from

sources within the state. This principle, which is well-established, recognizes the right of a state

(or local jurisdiction) to tax the income of a nonresident when that income has its source within

the state even when there is no physical presence by the taxpayer.

Although Taxpayer readily acknowledges the source-of-income principle (as he must),

he claims that "for income derived from personal services" "the source of such income is the

jurisdiction where the services are performed.'° Brief of Appellant at 20. Physical presence

however is not the sole factor in determining if a state may tax as Taxpayer suggest. See

Northwestern States Portland Cement Co., v. State of Minn., 358 U.S. 450, 452 (1959)

(explaining that when determining whether a nexus existed between a taxing entity and a

taxpayer, physical presence was not the sole factor). In Quill Corp. v. North Dakota, 504 U.S.

-31-

298 (1992), the United States Supreme Court held that physical presence is not require for due

process noting that "[o]ur due process jurisprudence has evolved substantially [and that] ***

we have abandoned [] formalistic tests that focused on a [taxpayer's] 'presence' within a State

in favor of a more flexible inquiry[]"). In Couchot v. State Lottery Comm'n., 74 Ohio St.3d 417,

421, 659 N.E.2d 1225, 1228 (1998), discussing the commerce clause, this Court stated that

while "[t]he [United States] Supreme Court in Quill reaffirmed the physical-presence

requirement [for purposes of the commerce clause] as to sales and use taxes[,] [t]he court

pointed out that 'concerning other types of taxes we have not adopted a similar bright-line,

physical-presence requirement."'

Contrary to Taxpayer's claim, a physical presence requirement clearly does not control

the outcome of this case. Taxpayer's physical presence in Cleveland was not required to

impose Cleveland's income tax on the wages earned. Said tax clearly did not violate the Due

Process and Commerce Clauses on that basis.


Cleveland's Taxation Of The Wages Earned For The Cleveland Game Does Not Violate Due

Process Under This Court's Test Set Forth In Angell v. City of Toledo.

On page 21 of his brief, Taxpayer cites to Ohio appellate court cases and claim they

stand for the proposition that "it is the `protection, opportunities and benefits' afforded to the

taxpayer - not merely to the taxpayer's employer - that are the crux of the constitutional

analysis." This Court addressed that very argument in Angell v. City of Toledo, 153 Ohio St. 179,

91 N.E.2d 250 (1950) where the Court explained as follows:

In the case of State of Wisconsin v. J.C. Penny Co., it was held thatthe test of whether a tax law violates the due process clause iswhether it bears some fiscal relation to the protections,

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opportunities, and benefits given by the state, or in other words,whether the state has given anything for which it can ask a return.

The municipality certainly does afford protection against fire,theft, et cetera, to the place of business of [employee's] employerand the operation thereof without which [employee's] employercould not as readily run its business and employ help. In otherwords, the city of Toledo does afford to [employee] not only aplace to work but a place to work protected by the municipalgovernment of Toledo.

Id. at 153 Ohio St. at 185, 91 N.E.2d at 253 (emphasis added) (citation omitted).

While Taxpayer acknowledges on page 49 of his brief, the "public service[] [cost] [] for

major athletic events," his suggestion that Cleveland has given nothing for which it can ask a

return clearly fails. As shown, Taxpayer received compensation as a result of the game in

Cleveland and Cleveland provided the protections and benefits for the game to take place (not

to mention the Cleveland-owned stadium where the event occurred). While Taxpayer may not

have played or even traveled to Cleveland, he like the rest of his Indianapolis Colts teammates

certainly benefitted from the fact that said game was held. There is clearly sufficient contact

for taxation of the income earned by Taxpayer for such game.


The Toliver, VonKaenel And Miley Cases Plainly Do Not Assist Taxpayer Nor Does Taxpayer's

New Argument Purportedly Based On "The [S]tatutory [Text] [Of R.C. 718.011]."

In his brief, Taxpayer cites to Ohio appellate court cases which he claims stand for the

proposition that physical presence is required to tax the wages earned in Cleveland. Brief of

Appellant at 16; 21-22. Toliver v. City of Middletown, No. CA99-08-147, 200 WL 895261 (12th

Dist., June 30, 2000) is clearly distinguishable since the issue in that case was whether the

municipality could tax 100% of a nonresident's wages even where work was done outside the

-33-

city. So too are VonKaenel v. City of Philadelphia, No. 2000AP-04-0041, 2001 WL 81700 (5th

Dist, Jan. 23, 2001) and Miley v. City of Cambridge, No. 96 CA 44, 1997 Ohio App. LEXIS 3243

(5th Dist June 25, 1997).

Toliver involved nonresident delivery drivers and the issue in that case was whether the

municipality could tax 100% of the nonresidents' wages where work was done outside the city.

Toliver, 2000 WL 895261 at *1. The ordinance in Toliver provided that city tax was imposed on

all wages earned "by nonresidents for work done or services performed or rendered in the City

or as a result of employment in the City." Id. at *3. In Toliver, the court found the ordinance

was unconstitutional because it permitted the city "to collect taxes from a non-resident

performing work outside the city limits." Id. at *6. The court determined that the city had "no

jurisdiction to impose its tax on *** earnings that are attributable to work done outside the city

*** despite the fact that [taxpayers' employer] does business with [a company located in the

city]." Id. Like Toliver, VonKaenel involved nonresident delivery drivers and the issue was

whether the municipality could tax 100% of the nonresidents' wages even where work was

done outside the city. Vonkaenel, 2001 WL 81700 at *1. The ordinance in VonKaenel provided

that city tax was imposed on "all payments made through a New Philadelphia employment or

business without any allocation to time spent working outside New Philadelphia compared to

time working within New Philadelphia." Id. In Miley, "th[e] ordinance impose[d] an income tax

on non-residents of the city who perform work outside the [c]ity [], for employers who have

their principal place of business inside the [c]ity[.] Miley, 1997 Ohio App. LEXIS 3243 at *2.

The situation here clearly differs from all of those cases. First, Cleveland is not taxing

100% of the Taxpayer's total wages; Cleveland is only taxing that portion of Taxpayer's wages

-34-

that is attributable to the Cleveland game. Second, Cleveland is not taxing a nonresident for

work performed outside of Cleveland; Cleveland is taxing a nonresident for wages he earned as

a result of an event that occurred in Cleveland (the Cleveland game).

None of these cases assist Taxpayer as he claims. Nor does Taxpayer's new argument

that "[t]he statutory text [of R.C. 718.011] plainly implies that a municipality's authority to tax a

nonresident's compensation only arises in the first place if the nonresident taxpayer has

performed some services within the municipality.°" Brief of Appellant at 17 (emphasis original).

As explained earlier, the only limitation that the General Assembly has placed on municipalities

with respect to taxing wage income is that such wages constitute "qualifying wages." R.C.

718.03(A)(2); 718.01(H)(10). Taxpayer's new argument is clearly without merit too.

Proposition of Law No. 12

Taxpayer Waived Any Dormant Commerce Clause Challenge To Games-Played Method Having

Failed To Raise The Issue As Error In His Notice Of Appeal Or Before The Lower Tribunals.

For the first time in briefing to this Court, Taxpayer raises a dormant commerce clause

challenge claiming Cleveland's games-played method "favor[s] local interest over out-of-state

interests." Brief of Appellant at 44. Taxpayer argues the method favors members of

Cleveland's Clubs since they can "practic[e] and conduct[] other non-game activities within the

City" but "[n]on-Cleveland Clubs do not have that option[,]" therefore "the effect of Cleveland's

use of the games-played method is to discriminate against interstate commerce by subjecting

players on out-of-state visiting Clubs to the threat of multiple taxation that in-state Cleveland

Clubs can avoid." Brief of Appellant at 45. Taxpayer, however, has waived any dormant

commerce clause challenge to the games-played method since he failed to raise the issue

before the lower tribunals or in any of his notices of appeal to those tribunals or to this Court.

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Paragraph 3(d) of Taxpayer's notice of appeal to the Cleveland Board states (in part):

*** Cleveland's games played apportionment method unfairlyapportions income to the City for services performed elsewhere.The games played method therefore violates the fairapportionment requirements of the Commerce Clause.

Taxpayer's Notice of Appeal to the Cleveland Board at p. 5. Paragraph 5 of his notice of appeal

to the BTA states ( in part):

*** Cleveland's use of a games-played formula results inCleveland unfairly apportioning to Cleveland income earned by[Appellant] for services performed elsewhere, in violation of theCommerce Clause of the United States Constitution[.]

Taxpayer's Notice of Appeal to the BTA at p. 4. And Paragraph 14 of Taxpayer's notice of

appeal to this Court states (in part):

*** allocating Appellants' income on the basis of games playedresults in the unfair apportionment to Cleveland of income earnedby Appellants for services performed elsewhere, in violation ofthe Commerce Clause and the Due Process Clause of the UnitedStates Constitution.

Taxpayer's Notice of Appeal at p. 4. Taxpayer has never alleged or even mentioned the

dormant commerce clause or complained of differential treatment favoring local interests.

Clearly, a notice of appeal from the BTA to this Court must "set forth the decision of the

board appealed from and the errors therein complained of." R.C. 5717_04 (emphasis added).

The same is true of a notice of appeal from a municipal board to the BTA. R.C. 5717.011(C) ("A

notice of appeal *** shall contain a short and plain statement of the clamed errors").

The dormant commerce clause deals specifically with "'economic protectionism [and]

regulations designed to benefit in-state economic interests by burdening out-of-state

competitors[,]" Department of Revenue v. Davis, 553 U.S. 328, 337-338 (2008) (quoting New

-36-

Energy Co. v. Limbach, 486 U.S. 269, 273-274 ( 1988), something Taxpayer has never alleged or

even argued. The dormant commerce clause is intended solely to protect the interstate

market, not guarantee even playing fields between competing businesses. Columbia Gas

Transmission v. Levin, 117 Ohio St.3d 122, 882 N.E.2d 400, 2008-Ohio-511, ¶58; Exxon Corp. v.

Gov. of Maryland, 437 U.S. 117, 127 (1978).

In this case, Taxpayer has clearly waived any issue of whether the games-played method

violates the dormant commerce clause.


Taxpayer Has Offered Only Allegations Asserting Violation Of The Dormant Commerce ClauseAnd Not Evidence Of Record To Support His New Dormant Commerce Clause Theory.

Taxpayer not only seeks to assert an entirely new claim alleging that Cleveland's games-

played method violates the dormant commerce clause but seeks to base such claim only on

allegations and not evidence of record. The claim should fail for this reason as well.

The dormant Commerce Clause requires that the states not "mandate differential

treatment of in-state and out-of-state economic interests that benefits the former and burdens

the latter." Granholm v. Heald, 544 U.S. 460, 472 (2005) ( quotation marks and citation

omitted). To determine whether a law violates the dormant Commerce Clause, a court first

asks whether the law discriminates on its face against interstate commerce. United Haulers

Ass°n Inc. v. Oneida-Herkimer Solid Waste Management Auth., 550 U.S. 330, 338 (2007). Where

a law is not discriminatory on its face such as Cleveland's games-played method, the U.S.

Supreme Court held in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) that "it will be upheld

unless the burden imposed on such commerce is clearly excessive in relation to the putative

local benefits." Id. at 142. As one federal appeals court just recently explained: "The Pike

-37-

inquiry, like the discrimination test, is fact-bound." Colon Health Centers of Am., LLC v. Hazel,

733 F.3d 535, 546 (4th Cir. 2013) (noting that "in order to survive a motion to dismiss, plaintiffs'

'factual allegations must be enough to raise a right to relief above the speculative level"

because of "[t]he fact-intensive character of this inquiry") (citation omitted). Indeed, this is

consistently shown in the U.S. Supreme Court cases applying Pike. See e.g., Kassel v.

Consolidated Freightways Corp., 450 U.S. 662 (1981) ( reviewing evidence adduced in 14-day

trial addressed to the benefits and burdens of state legislation); Minnesota v. Clover Leaf

Creamery Co., 449 U.S. 456, 470-74 (1981) ( reviewing evidence adduced in extensive

evidentiary hearings under Pike); Raymond Motor Transp., Inc. v. Rice, 434 U.S. 429, 444 (1978)

(invalidating state regulation under Pike based upon the plaintiff's "massive array of evidence"

which disproved the regulation's alleged benefits). Taxpayer here is asking the Court to second-

guess the policy judgment to use the games-played method without a shred of record evidence

(only his allegations) of the discriminatory impact it supposedly has on interstate commerce.


Taxpayer's Due Process And Commerce Clause Arguments Are Simply A Disguised Attempt Of

Asserting Same Proposition-That An Apportionment Method Must Be Based On Time Or Days.

As noted above, Taxpayer has waived any nonconstitutional error that the games-

played method is unreasonable (including application of the method to athletes absent from

the game due to injury or illness) having failed to address the issue in his merit brief. Further,

Taxpayer's due process and commerce clause arguments are nothing more than a disguised

attempt of asserting the same proposition-that an apportionment method must be based on

time or days-which is simply not true. There is no constitutional case here.

-38-

A. Taxpayer's Complaint In This Case Is Clear.

It is true that both the due process and commerce clauses place limitations on

Cleveland's taxing power-those limitations while distinct are somewhat overlapping. Due

process looks to the sufficiency of the contact or connection between the taxing jurisdiction

and the activity it seeks to tax; while the commerce clause considers whether the tax unduly

burdens interstate commerce. Quill Corp., 504 U.S. at 305-306.

Taxpayer's complaint in this case is clear-since more income is attributed to Cleveland

under the games-played method than under the duty-days method, Cleveland is taxing more

income than it should. This, however, hardly shows any type of constitutional infirmity.

Neither constitutional provision is violated by Cleveland's games-played method.

B. Hans Rees' Sons and Norfolk & Western.

On page 39 of his brief, Taxpayer complains that under the games-played method

"Cleveland allocated to itself over 350% [more in] income that would have been allocable to

Cleveland had it applied the duty days method[.]" (italics original.) Taxpayer contends that

"where a formula results in a significantly greater percentage of a taxpayer's income being

apportioned to the taxing jurisdiction than is actually generated in the taxing jurisdiction, the

Supreme Court has not hesitated to strike down the formula" claiming that such is a"'grossly

distorted result"' and "out of all proportion with the services he performed in Cleveland." Id. at

38; 39; 40. Taxpayer cites to Hans Rees' Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U.S.

123 (1931) and Northfolk & Western Railway Co. v. Missouri State Tax Comm., 390 U.S. 319

(1968) suggesting that the games-played method here must be struck down. Taxpayer's

attempted reliance on these two cases, however, must clearly be rejected.

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"In both Hans Rees' Sons and Norfolk & Western, the [United States] Supreme Court was

persuaded by plaintiffs' evidence of actual data and detailed accounting that conclusively

proved that, in fact, their income was derived from other states." CSX Transp., Inc. v. Director,

Div. of Taxation, 22 N.J. Tax 399, 418 (N.J. Tax Ct. 2005). In Hans Rees' Sons, the Supreme Court

found that income attributed to the state of North Carolina was out of all appropriate

proportion to the business transacted there where the taxpayer corporation demonstrated that

while approximately 80% of its income was allocated to North Carolina under the state's single-

property factor formula, less than 22% of its income had its source in the corporation's

operations within North Carolina. 283 U.S. at 135-36. In Norfolk & Western, the Court found a

grossly distorted result in a case involving application of Missouri's single-factor formula, based

on track-miles, to apportion the rolling stock of a Virginia railroad with interstate operations

and only incidental business in Missouri where (i) Missouri determined the value of the

railroad's rolling stock in Missouri to be nearly $10 million more than it had been the year

before and (ii) the railroad provided evidence of the "actual count of the rolling stock in

Missouri" showing that its true value was closer to the figure of the previous year. 390 U.S. at

319-22, 326-27.

These cases teach that "the States have wide latitude in the selection of apportionment

formulas and that a formula-produced assessment will only be disturbed when the taxpayer has

proved by 'clear and cogent evidence' that the income attributed to the State is in fact 'out of

all appropriate proportion to the business transacted *** in the State,' or has 'led to a grossly

distorted result.'" Moorman Mfg. Co. v. Blair, 437 U.S. 267, 274 (1978) (quoting Hans Rees'

Sons, 283 U.S. at 135 and Norfolk & Western, 390 U.S. at 326). The question here is where is

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any "clear and cogent evidence" demonstrating that the games-played method "grossly

overstated" Taxpayer's Cleveland income? Taxpayer cannot point to any. The duty-days

apportionment method only shows that there is another method that could be utilized to

measure Taxpayer's income relating to the activity in Cleveland that generated that income. In

Hans Rees'Sons, the Supreme Court refused to approve the result not on the grounds that a

single-property formula could not be used, but on the grounds in that particular case, that the

single-property formula did not give weight to taxpayer's income producing activities

conducted outside the state and was therefore unreasonable. The same could be said for the

duty-days method since it fails to give proper weight to the income producing activity Taxpayer

was hired for-the games-and equates the game with one practice day, one meeting day, one

travel day, attending one promotional event, etc.

The U.S. Supreme Court has also made clear its "decisions recognize the practical

difficulties involved and do not require any close correspondence between the result of

computations [where two different apportionment formulas may be used]." Norfolk &

Western, 390 U.S. at 327. According to Taxpayer, "[u]nder the duty days method,

approximately 1.24% of [his] income would have been allocated to Cleveland" but [b]y using

the games-played method[], Cleveland allocated to itself 4.5% of [his] income." Brief of

Appellant at 39. So Taxpayer is really complaining about paying tax on a little more than 1% as

opposed to a little less than 5%. This difference is of no moment notwithstanding Taxpayer's

claim that this translates to a 350% increase in the amount of income attributed to Cleveland.1z

12Taxpayer's math is wrong. Based on his own claims the correct percentage would be275% ( 1.24% = 4.5%).

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Nothing in the record shows that Taxpayer was grossly overtaxed by Cleveland. There is

no basis for the Court to assume that Cleveland's games-played apportionment method

produced a grossly unfair result (especially if one accepts the premise that players are paid for

the games). The fact that a duty days method would allow Taxpayer to pay less tax to

Cleveland is not the test of unconstitutionality which Taxpayer has clearly failed to prove.

C. Substantial Evidence Exists To Support Games-Played Method.

It would be noted that while the U.S. Supreme Court in Norfolk & Western "conclude[d]

that, on the present record, Missouri ha[d] in th[at] case exceeded the limits of her

constitutional power to tax, as defined by the Due Process and Commerce Clauses [that it was

still] open to the Missouri Supreme Court [] to remand the case to the appropriate tribunal to

reopen the record for additional evidence to support the assessment." 390 U.S. at 329-330.

Here, as shown earlier, there is substantial evidence in the record to support the games-played

apportionment method. The evidence shows football is an entertainment product. The players

are hired to do one thing-play in games; everything else is ancillary to that purpose. in

addition, the contractual documents governing the players' employment relationship with the

NFL and its teams is also clear evidence that supports the games-played method. Not only is

player compensation tied to the games, every single important right or benefit that a player

may be entitled to receive is based only on one thing-the games.

D. The Minimum Contacts Requirements Of Due Process.

Due process concerns the connection that must exist between the taxpayer and

municipality before the municipality has authority to tax. Northwestern, 358 U.S. at 465. All it

requires is some minimal connection between the governmental entity and the person,

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property or transaction it seeks to tax. Wisconsin v. J.C. Penny Co., 311 U.S. 435, 444 (1940);

Quill, 504 U.S. at 305-307. "Minimum connection" considers whether there is a definite link

and rational relationship between the taxing jurisdiction and the person or activity taxed. Quill

Corp., 504 U.S. at 36. With respect to nonresidents, the question is whether the nonresident

availed himself of the protections and benefits given by the municipality. See Angell, 153 Ohio

St. 179, 185 91 N.E.2d 25.

In International Harvester, the United States Supreme Court explained that "[a] state

may tax such part of the income of a non-resident as is fairly attributable either to property

located in the state or to events or transactions [] occurring there[.]" 322 U.S. at 441-442.

Since Taxpayer certainly earned income from an activity conducted in the City-the

Cleveland game-he clearly availed himself of the benefits and protections offered by the City.

The minimum connection and definite link requirement between Cleveland and Taxpayer under

the games-played method is certainly met.

E. The Commerce Clause Test Of Complete Auto.

The Commerce Clause limits a municipality's authority to tax if such tax unduly burdens

interstate commerce. A taxing statute does not violate the Commerce Clause if it (i) is applied

to an activity with a substantial nexus within the municipality; (ii) is fairly apportioned; (iii) does

not discriminate against interstate commerce; and (iv) is fairly related to the services provided

by the municipality. Complete Auto Transit Inc. v. Brady, 430 U.S. 274, 279 (1977).

On page 43 of his brief, Taxpayer complains that the second, third and fourth prongs of

the Complete Auto test are not met under the games-played method. Notably, Taxpayer does

not complain that the substantial nexus requirement has not been met.

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1. Taxpayer's Income Was Fairly Apportioned To Cleveland.

With regard to fair apportionment, a tax is "fairly apportioned" if its purpose is to tax

only its fair share of an interstate transaction. Container Corp of Am. v. Franchise Tax Board,

463 U.S. 159, 169 (1983). Courts determine if a tax is fairly apportioned by looking at whether

it is "internally consistent" and "externally consistent."

"Internal consistency" looks at the narrow issue of whether the tax (if applied by all

other states) would affect or place an undue burden on interstate commerce. Id. The test is

not whether there is any overlap of taxation but rather, whether there is an impermissible

burden on interstate commerce caused by the overlap. Moorman, 437 U.S. at 276-278. A tax is

fairly apportioned if it reaches only those nonresident athletes who have contacts within the

City. Since Cleveland's tax is so applied, it is internally consistent-if every jurisdiction used the

games-played method, no overlap whatsoever would occur. On page 36 of his brief, Taxpayer

concedes (as he must) that the games-played method is "internally consistent" stating that

"(t]he games-played method of allocation concededly is not internally inconsistent, because it

would not result in multiple taxation if employed by every jurisdiction."

"External consistency" looks at whether the city tax only taxes that portion of interstate

revenues that reasonably reflect an activity within the city. Oklahoma Tax Comm'r v. Jefferson

Lines, 514 U.S. 175, 185 (1995). On pages 40-41 of his brief, Taxpayer claims that the games-

played method "is not externally consistent" because it taxes more than its fair share "creat[ing]

a real risk of multiple taxation."13 The games-played method however certainly complies with

13 Taxpayer claims that "Cleveland's use of the games-played method creates a real risk ofmultiple taxation [simply] because no other NFL jurisdiction utilizes that method ofallocation." Brief of Appellant at 40.

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the external consistency requirement since Cleveland taxes only income derived from the

Cleveland game. Taxpayer has no argument in this regard. A tax does not violate the commerce

clause if it is "reasonably related to the extent of the contact" between the taxpayer's activities

and the taxing state. Commonwealth Edison Co. v. Montana, 453 U.S. 609 (1981).

2. The Games-Played Method Does Not Burden Interstate Commerce.

As to whether the tax discriminates against interstate commerce, the test is whether it

places a greater burden on nonresidents than residents. Jefferson Lines, 514 U.S. at 266;

Complete Auto, 430 U.S. at 279. If a tax is fairly apportioned, it has also been traditionally

found not to discriminate. Montana, 453 U.S. at 624-625 citing J.C. Penney, 311 U.S. at 444;

American Trucking Assn v. Schniner, 483 U.S. 266, 277 (1987); Goldberg v. Sweet, 488 U.S. 252,

255-256 (1989). Unless Cleveland's tax is found to be discriminatory on its face (which it is not)

and not designed to promote a legitimate governmental interest, it must be upheld on

discriminatory grounds.

Income Apportioned Was Fairly Related To Cleveland Activities.

In determining if Cleveland's tax is fairly related to the services it provides, the question

is whether the City has given anything for which it can ask something in return. J.C. Penny, 311

U.S. at 444. In other words, whether the tax is reasonably related to the services Cleveland

provides so as to justify the tax. The answer to that question is yes since nonresident athletes,

in particular benefit from police, fire, roads, an economic market to showcase athletic talent

etc., because the games are held in Cleveiand. Nonresidents are required to pay for that

service just like residents pay even though the services may not be used. The purpose of the

fourth prong of the Complete Auto test is simply "to ensure that a State's burden is not placed

-45-

upon persons who do not benefit from services provided by the State." Goldberg, 488 U.S. at

266-267. Under this prong, the "measure of the tax" (the games) must be reasonably related to

the activities of the taxpayer in the taxing state." Id. at 266; Montana, 453 U.S. 609, 626.

Certainly, that test is met. Cleveland is not seeking more than its fair share of the benefits and

protections it has provided Taxpayer. Because Cleveland's tax is in proportion to the income

producing activities conducted in the City and Taxpayer's enjoyment of the opportunities and

services Cleveland provided in connection with those income-producing activities, the city tax is

certainly fairly related to the activities conducted here. No commerce clause violation has been

demonstrated.

Taxpayer contends that the games-played method is not fairly related to the activities

conducted in Cleveland since "[e]ven assuming that [h]e performed services in Cleveland on

two days during the 2008 tax year, he performed services for the Colts on a total of 161 duty

days in 2008." Brief of Appellant at 37. Again, Taxpayer is clearly suggesting that an

apportionment method must be based on time or days which is simply not true.

Taxpayer also argues that by including his roster bonus that "was [paid and] tied only to

his status as a member of the Colts" shows that the games-played method is "not 'reasonably

related to the extent' of [his] contact with Cleveland." Id. at 47 (citation omitted). According to

Taxpayer, "[a]pproximately 40% of NFL player compensation is paid in a form other than yearly

salary, such as roster bonuses and signing bonuses." Id. at 9. Bonuses and incentive pay

however are clearly considered wages for FICA tax purposes and part of the athlete's overall

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compensation.14 Taxpayer's roster bonus was part of his overall total compensation. The

games-played method clearly recognizes that fact.


The Games-Played Apportionment Method's Inclusion Of Income In The Preapportioned Tax

Base Is Not Tantamount To Direct Taxation Of Such Income Or Extraterritorial Taxation.

Taxpayer also seems to be suggesting that by including total compensation in the

games-played formula somehow Cleveland is directly taxing all such income. However, the

United States Supreme Court long ago in Shell Oil Co. v. Iowa Department of Revenue, rejected

the argument that'°the inclusion of income in the preapportioned tax base" "amount[s] to

extraterritorial taxation." 488 U.S. 19, 22 (1988). In that case, the Court upheld the inclusion of

income derived from outer continental shelf ("OCS") activities within the unitary (pre-

apportioned) tax base of Iowa's income tax. In so doing, the Court rejected the taxpayer's

argument that revenues derived from oil and gas production on the OCS, far distant from Iowa,

should be attributable to their source, explaining as follows:

[Taxpayer's] argument hinges on the mistaken premise thatincluding OCS-derived income in the preapportionment tax base istantamount to the direct taxation of OCS production. But incomethat is included in the preapportionment tax base is not, by virtueof that inclusion, taxed by the State. Only the fraction of totalincome that the apportionment formula determines (bymultiplying the income tax base by the apportionment fraction) tobe attributable to Iowa's taxing jurisdiction is taxed by Iowa. Asour Commerce Clause analysis of apportionment formulas hasmade clear, the inclusion of income in the preapportioned taxbase of a state apportionment formula does not amount toextraterritorial taxation. This Court has repeatedly emphasized

14 Rev. Rul. 2004-109, 2004 WL 2659666 (rejecting argument that a signing bonus is notwages for purposes of FICA, FUTA or federal income tax withholding based on the factthat the players' "contract provides that the bonus is not contingent on theperformance of future services").

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that the function of the apportionment formula is to determinethe portion of a unitary business' income that can be fairlyattributed to in-state activities.

488 U.S. 19, 30-31 (1988) (citations omitted).

As stated in Shell, including total income within the preapportioned tax base is not

tantamount to direct taxation of all such income. The clear function of the games-played

apportionment method is to determine the portion of income that can be fairly attributed to

the Cleveland activities.


Dividing Taxpayers Into Classes For Purposes Of Levying An Income Tax Does Not Offend The

Equal Protection Clause So Long As Any Resulting Tax Is Levied In A Uniform Fashion.

On page 49 of his brief, Taxpayer claims that the state statute that authorizes Cleveland

to tax professional athletes who perform services in the City on twelve or fewer days-R.C.

718.011(B)-is unconstitutional because it "single[s] out nonresident professional athletes for

less advantageous tax treatment than similarly situated taxpayers" since it authorizes taxation

of professional athletes in cases where other nonresidents are not taxed. According to

Taxpayer such "is not rationally related to any legitimate state interest." Id.

This Court long ago held that taxpayers may be divided into classes for purposes of

levying an income tax. Clark v. Cincinnati, 163 Ohio St. 532, 127 N.E.2d 363 (1955). Classifying

taxpayers does not offend constitutional guarantees so long as the tax levied within each such

class is levied in a uniform fashion. Id. at 535, 127 N.E.2d at 365. Because no fundamental right

or suspect classification is at issue here, the state statute under attack (R.C. 718.011(B)) is

facially neutral and must be reviewed under a rational basis test. Oliver v. Cleveland Indians

Baseball Co. Ltd. P'ship, 123 Ohio St.3d 278, 915 N.E.2d 1205, 2009-Ohio-5030 at ¶9, MCI

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Telecommunications Corp, v. Limbach, 68 Ohio St.3d 195, 199, 625 N.E. 597, 600 (1994). Using

a rational basis test, so long as the tax is rationally related to a legitimate governmental

interest, an equal protection challenge fails. Id.

Here, the legitimate governmental interest is raising revenue and preserving financial

soundness. Angell, 153 Ohio St. at 182, 91 N.E.2d at 252 ("[a] fundamental power of

government is the power to raise revenue"); Menefee v. Queen City Metro, 49 Ohio St.3d 27,

29, 550 N.E.2d 181 (1990) (the "state has a valid interest in preserving the financial soundness

of its political subdivisions"). "The basic purpose of an income tax is to raise funds to operate

the government[.}" Clark, 163 Ohio St. at 535, 127 N.E. 2d at 366. Discussing the purpose of

the equal protection clause, this Court in MCI held that "[o]f course, most laws differentiate in

some fashion between classes of persons. The Equal Protection Clause does not forbid

classifications. It simply keeps governmental decisionmakers from treating differently persons

who in all relevant respects are like." 68 Ohio St.3d at 199, 625 N.E.2d at 600 (citation

omitted).

That R.C. 718.011 permits nonresident professional athletes and entertainers to be

taxed where other nonresidents are not taxed is not an equal protection violation since all

members of that class are treated the same. As one commentator noted "[i]f a nonresident

professional athlete challenges an income allocation system under the Equal Protection Clause,

the state tax will certainly stand pursuant to the rational relation test." Kevin Koresky, Tax

Considerations for U.S. Athletes Performing in Multinational Team Sport Leagues or "You Mean l

Don't C;•etAl/ of My Contract Money?!" 8 Sports Law. J. 101, 112, (2001). Such should certainly

be the case here.

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CONCLUSION

Taxpayer is subject to Cleveland tax on the wages earned as a result of the Cleveland

game just like he was subject to Ohio personal income tax on those same wages. That Taxpayer

may not have traveled to Cleveland does not change that fact-it's not even a close question.

Additionally, there is no constitutional case here (as noted Taxpayer waived any

nonconstitutional error by failing to assert such in his initial brief). Taxpayer's entire case is

based on the fallacy that an apportionment method must be based on time or days. And

Taxpayer's emphasis that Cleveland is the only jurisdiction using the games-played method is

wholly irrelevant (even if true) since a tax by one jurisdiction clearly does not turn on how other

jurisdictions might tax. See,4rmco, Inc. v. Hardesty, 467 U.S. 638, 654 (1978).

Finally, it is clear that the nature of the business of the NFL is entertainment based on

the games. Further, the contractual documents governing the employment relationship

between the NFL, its teams and the players show that everything-from compensation to every

single right or benefit a player may receive to even discipline-is based on the games. How can

it possibly be said that a tax measured by the same games is unreasonable? It cannot.

For all the reasons stated herein, this Court should affirm the decision of the BTA and

find against Taxpayers on all of their constitutional assertions and claims.

Respectfully submitted,Barbara A. Langhenry, Esq., #0038838Director of Law

Ql_

^ aBy: inda l : ickers ff, Esq ,# 052101Assistant Director of Law

Attorneys for the City of Cleveland Board of Reviewand Nassim M. Lynch

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CERTIFICATE OF SERVICE

A copy of the foregoing Merit Brief of Appellees, City of Cleveland Board of Review and

Nassim M. Lynch was served by regular U.S. mail on Richard C. Farrin, Esq., Zaino Hall & Farrin,

LLC, 41 South High Street, Suite 3600, Columbus, Ohio 43215 and Stephen W. Kidder, Esq.,

Hemenway & Barnes, 60 State Street, Boston, MA 02109-1899, on this 24th day of July 2014.

Linda L. Bickers ff, Esq.Assistant Director of Law

Attorney for the City of Cleveland Board of Reviewand Nassim M. Lynch

APPENDIX

CITY OF CLEVELANDBOARD OF INCOME REVIEW

In re: Jeffrey B. SaturdayKaren R. Saturday

Introduction

Case No. 01-011

DECISION

This cause and matter comes to be considered by the City of Cleveland Board ofIncome Tax Review upon a notice of appeal fiied by Jeffrey B. and Karen R. Saturday,Taxpayers. The Taxpayers challenge a decision of Nassim M. Lynch, Tax Administratorfor the City of Cleveland. The Tax Administrator denied a refund of income taxeswithheld by Mr. Saturday's employer and paid to the City during tax year 2008. TheTaxpayers argue that the Tax Administrator erred in finding that certain incomereceived by Mr. Saturday during a year when he neither resided in nor played in an NFLfootball game in the City of Cleveland was includabie in taxable income in Cleveland.Upon review, this Board affirms the Tax Administrator's decision.

History of the Appeal

A review of the record in this matter reveals that Mr. Saturday was employed bythe Indianapolis Colts. On November 30, 2008, the Indianapolis Colts traveled toCleveland and played a regular season NFL football game. On November 30, 2008, Mr.Saturday was deemed to be inactive due to injury, and he did not travel to Clevelandwith the Colts and did not play in the game.

The Taxpayers timely fiied a municipal income tax return with City of Clevelandon October 15, 2009, showing an overpayment of tax in the amount of $16.00 (TaxAdmin. Exhibit 1). On November 2, 2009, the $16.00 overpayment was refunded to theTaxpayers and cashed (Tax Admin. Exhibit 2). On November 18, 2009, Taxpayers filedthe request for refund that is the subject of this case, claiming that they are entitled toan additional refund based on the dual grounds that Mr. Saturday performed noservices in the City of Cleveland in 2008 and that the City's use of apportionment ofincome of professional athletes on the games-played method is illegal (Tax Admin.Exhibit 3). On September 2, 2010, the City Division of Taxation, finding that Mr.Saturday's employer had incorrectly calculated the tax due, recalculated the Taxpayers'2008 tax based on the games-played method of apportionment, resulting in anadditional refund in the amount of $300.00 (Tax Admin. Exhibit 4), paid by check in theamount of $306.00 to Taxpayers dated October 1, 2010, and cashed (Tax Admin.

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Exhibit 5). On September 29, 2010, Taxpayers' representatives requested a finaladministrative ruling from the Tax Administrator (Tax Admin. Exhibit 6). On January25, 2011, the Tax Administrator issued the final ruling from which Taxpayer brings thisappeal (Tax Admin. Exhibit 7).

On March 4, 2011, this Board received the current matter appealing the TaxAdministrator's ruling. On March 21, 2011, this Board set the matter for hearing onApril 7, 2011. On March 29, 2011, Taxpayers moved for a continuance of the hearingto allow more time to arrange attendance by witnesses. On April 4, 2011, Taxpayers'Motion for Continuance was granted for good cause shown. On April 28, 2011, thisBoard set the matter for hearing on June 24, 2011.

Appeal is Not Barred by Earlier Refund Based on Math Calculation.

The Tax Administrator contends that this appeal should not be heard becausethe Taxpayers' initial municipal income tax return constitutes one or more of thefollowing items, any one of which would preclude this action: res judicata, election ofremedies, or issue preclusion or waiver. This Board does not understand res judicata tobe applicable unless there has been 0- hearing or other opportunity to be heard. Wealso do not understand how there can be an election of remedies or waiver because noelection or waiver was knowingly made. In this case, the Taxpayers' first refundrequest was a simple mathematical calculation, and without more, this Board does notfind there to be res judicata, election of remedies, or issue preclusion or waiver.Nothing in the case law submitted by the Tax Administrator convinces us otherwisesince those cases seem to involve amending an earlier refund claim after the statute oflimitations had run on a second refund claim. In the present case, the second refundclaim was filed before the running of the statute of limitations. We, therefore, believethat this appeal is not precluded and is properly before us.

Taxpayers Failed to Meet Their Burden of Proof that Games-Played Allocation IsUnreasonable And Should Be Overturned.

The Rules and Regulations of the Tax Administrator allocate income ofprofessional athletes based on a fraction, with the numerator being the number ofgames played in the City of Cleveland and the denominator being the number of gamesplayed everywhere. Other jurisdictions allocate income of professional athletes basedon duty days, and employ a denominator that takes into account certain other non-game activities. Taxpayers' challenge to the use of the games played method is thelynchpin of their case. Under the duty-day method of allocation of income, November30, 2008, may have been a day spent in rehabilitation for Mr. Saturday outside the Cityof Cleveland (the Board does not find sufficient established facts to determine whetherMr. Saturday was actually performing rehabilitation activities on that date or was merely

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resting); whereas, under the games-played method of allocation, November 30, 2008,was a sick day for Mr. Saturday, with Cleveland being the location where Mr. Saturdaywould have worked if he had not received an excused absence. For the reasons statedbelow, we frnd that the Tax Administrator correctly allocated Mr. Saturday's income ona games-played basis.

Because taxation does not involve any fundamental rights, the wisdom of thetaxing authority is not questioned so long as there exists a fair and substantial relationto the object of taxation. F.S. Royster Guano Co. v. Virginia, (1920) 253 U.S. 415. Inother words, a tax provision will be upheld so long as there is a reasonable basis for theprovision.

In lieu of presenting witnesses available for examination, the Taxpayers' havesubmitted into evidence the following:

Taxpayers' Exhibit A - Affidavit of Thomas J. DePaso, Associate GeneralCounsel of the National Football League Players Association

Taxpayers' Exhibit B - Affidavit of Jeffrey B. Saturday, Taxpayer

Taxpayers' Exhibit C - Affidavit of Karen R. Saturday, Taxpayer

Taxpayers' Exhibit D - Affidavit of Kurt Humphrey, Indianapolis Colts VicePresident of Finance

Taxpayers' Exhibit E - Affidavit of Dave Hammer, Indianapolis Colts HeadAthletic Trainer

No witness appeared before this Board for cross-examination by the Tax Administratoror for questioning by this Board. No explanation was offered concerning theunavailability of the witnesses. This Board granted a continuance to allow forscheduling attendance of witnesses, and a second continuance was not requested.

This Board is not bound by the Rules of Evidence, but part of the job of thisBoard is to decide what weight to give the evidence offered and admitted into evidence.Where there has been no opportunity for cross examination of witnesses by theopposing party, the evidence will be given less weight. In Exhibit A, Mr. DePasopurports to tell this Board the basis for paying Mr. Saturday under a 315-page CollectiveBargaining Agreement and NFL Player Contract. Mr. DePaso purports to sum up therelevant sections of both documents in a little over four pages. Mr. DePaso citesprovisions requiring athletes to attend training camps and practices, but supplies noinformation to refute the Tax Administrator's contention that the Taxpayer is part of ateam, that the Taxpayer's team played in the City of Cleveland, and that the Taxpayerreceived compensation on account of the game played in Cleveland. The remaining

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affidavits set forth information about the state of Mr. Saturday's health and hiswhereabouts on November 30, 2008, but supply no facts that show that the games-played allocation method is unreasonable.

The sole argument made by Taxpayers is the reasonableness of the duty-dayallocation method. Although the affidavits submitted by the Taxpayers show thattaxation based on duty days may be a reasonable method of allocation of an athlete'sincome, that is not the question before this Board. The question before this Board iswhether the use of the games-played method of allocation of Mr. Saturday's incomewas unreasonable in this case. No evidence has been submitted to support any conflictwith the allocation methods of any other jurisdiction when applied to this Taxpayer, norany other unreasonable application, effect or outcome in the context of this case.

The burden of proof is on the Taxpayers to demonstrate their right to relief.Although the Taxpayers have submitted evidence to support the reasonableness ofallocation of athlete's income on the duty-day method, the Taxpayers have failed tosubmit any evidence showing the unreasonableness of the games-played method ofallocation, despite the fact that the Taxpayers requested and were granted acontinuance for the specific purpose of scheduling witnesses. While the Taxpayersmight prefer that the City of Cleveland use a differerit allocation method, the City is notrequired to change its method of allocation unless it has been demonstrably proven tobe unreasonable, is expressly prohibited by State statute, or is overturned by a court oflaw. For this reason, this Board finds that the Taxpayers have failed to carry theirburden of proof with respect to the reasonableness of the allocation of athlete's incomeon a games-played basis, and the Tax Administrator acted appropriately with respect toincome allocation in this case.

Taxpayer's Sick Pay Was Properly Allocated to the City of Cleveland.

The next issue is whether the City of Cleveland may tax income paid on a sickday for work that would have been performed in Cleveland if Mr. Saturday had notbeen excused from playing in the November 30, 2008 game. Taxpayers cite Toliver v.Middletown, Butler App. No. CA99-08-147 (June 30, 2000) for the proposition thatCleveland may not tax Mr. Saturday for a sick day because he did not enter the City ofCleveland on that day. The Toliver case and others cited by Taxpayers involve truckerswho picked up cargo in the City of Middletown and then delivered the cargo elsewhere.In those cases, the truckers actually worked outside the City. This Board agrees withthe Toliver court that where work is performed by a nonresident outside a city, suchcity should not tax it. On the other hand, when an employee takes a sick day, it wouldbe an administrative burden to the taxing authority to determine where an employee issick or injured. It is, therefore, standard accepted practice to tax the employee wherehe or she would have worked if he were not sick or injured.

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P.4

In Codified Ord. 191.031501, the City of Cleveland defines "Qualifying Wages" aswages as defined in Section 3121(a) of the Internal Revenue Code, with certainadjustments. Internal Revenue Code Section 3121(a)(2)(a) includes in QualifyingWages the amount of any payment paid by an employer on account of sickness oraccident disability. The City of Cleveland is, therefore, within its power to tax paymentsmade by an employer during sickness or injury. Section 3.01(5) of the TaxCommissioner's Rules and Regulations states that other taxable income includesvacation, sickness or any other types of payments made under a wage or salarycontinuation plan. It goes on to provide that "Payments made by an employer to anemployee during periods of absence from work are taxable when paid and at the taxrate in effect at the time of payment. Sick leave or sick pay, disability pay, vacationpay, terminal pay, supplemental unemployment pay and severance pay may not beexcluded from taxable income" We find Section 3.01(5) of the Rules and Regulations tobe within the City of Cleveland's power to tax.

For the reasons stated herein, the Tax Administrator's decision is affirmed.

Robert J. Triozzi, Chairman

A. Withers

Martin J. S e ey

Page 5 of 649799-1 P 5

CERTIFICATE OF SERVICE

A copy of the foregoing Decision as mailed by regular U.S. mail, postage prepaid,on this ^-^^^ day of September, 2011, to:

Stephen W. Kidder, Esq.Hemenway & Barnes LLP60 State StreetBoston, MA 02129

and

Richard C. Farrin, Esq.McDonald Hopkins LLC41 South High Street, Suite 3550Columbus, OH 43215Attorneys for the Taxpayer

and

Linda L. Bickerstaff, Esq.Assistant Director of Law205 St. Clair AvenueCleveland, OH 44114Attorney for the Tax Administrator

iard'F. Horvdthng Director of Law

Page 6 of 649799-1 P.6

OHIO BOARD OF TAX APPEALS

Jeffrey B. Saturday and Karen B. Saturday,

Appellants,

vs.

City of Cleveland Board of Review andNassim Lynch, Cleveland TaxAdministrator,

Appellees

APPEA.RANCES:

7Zaino Hall & Farrin LLCRichard C. Farrin45 S. High Street, Suite 3600Columbus, Ohio 43215

For the Appellees - Barbara A. LanglienryCity of Cleveland Director of LawLinda L. BickerstaffAssistant Director of LawCity of Cleveland Department of Law205 W. St. Clair AvenueCleveland, Ohio 44113

Entered JAN 2 8 2011

Mri. Williamson, Mr. Johrendt, and Mr. Harbarger concur.

Appellants appeal from a decision of the City of Cleveland Board of

Review, i.e. municipal board of appeal ("MBOA"),' in which the MBOA denied

appellants' request for refund of income tax paid to the city of Cleveland for tax year

2008. We proceed to consider the matter upon the notice of appeal, the transcript

t R.C. 718.11 requires the legislative authority of each municipal corporation that imposes a tax onincome to maintain a board to hear appeals. R.C. 5717.011 refers to this body as a "municipal boardof appeal." Therefore, although the city of Cleveland's board identifies itself as the "City ofCleveland Board of Review," for purposes of consistency, we shall refer to Cleveland's board as themunicipal board of appeal, i.e. "MBOA."

CASE NO. 2011-4027

(MUNICIPAL INCOME TAX)

DECISION AND ORDER

For the Appellants - Hemenway & Barnes LLPStephen W. Kidder60 State StreetBoston, Massachusetts 02109-189

P.7

certified by the MBOA, and the parties' briefs. The parties waived the opportunity to

present evidence at a hearing before this board.

During the period at issue, Mr. Saturday was a professional football

player for the Indianapolis Colts. In tax year 2008, the city of Cleveland taxed a

portion of Mr. Saturday's income based on a regular season game played between the

Colts and the Cleveland Browns on November 30, 2008.2 Appellants filed a request

for refund of taxes paid, arguing that, because Mr. Saturday did not play in the

November 30, 2008 game and did not travel to Cleveland that day with the team, no

portion of his income was taxable to the city of Cleveland. Instead, because Mr.

Saturday was injured, he remained in Indianapolis and participated in rehabilitation

activities. The tax administrator for the city of Cleveland denied appellants' request

for refund, and the denial was affirmed by the MBOA. In its decision, the MBOA

found that appellants failed to meet their burden of proof that the "games-played"

allocation used by the city of Cleveland is unreasonable, and that Mr. Saturday's

absence from the November 30, 2008 game was properly treated as a "sick day" and

therefore taxable.

Appellants thereafter filed the present appeal, stating the following

specifications of error: (1) the MBOA erroneously characterized November 29 and 30

as "sick days," even though Mr. Saturday participated in rehabilitation exercises in

Indianapolis on those days; (2) the city had no authority to tax Mr. Saturday's income

where he "did not travel to or perform any services in Cleveland in 2008," in violation

of the Ohio and U.S. constitutions; (3) "Cleveland's use. of a games-played formula

results in Cleveland imposing a tax on income that is not eamed for work done or

services performed in Cleveland, in violation of both the Ohio Revised Code and the

City Ordinance;" (4) the MBOA erroneously concluded that appellants failed to supply

facts showing that the games-played allocation method is unreasonable; (5) the MBOA

erroneously found that appellants failed to present sufficient evidence because it was

2 As we explained in Hillenmeyer v. City of Cleveland Bd. ofReview (Jan. 14, 2014), BTA No. 2009-3688,unreported, the city of Cleveland taxes professional athletes under the "garnes-played" method,which "apportions income to a jurisdiction based upon the number of games played in a particularjurisdiction as compared to the total number of games played." Id. at fn. 2.

2 P.8

presented by affidavit rather than by live testimony at the hearing; and (6) "the

exclusion of professional athletes from the protection afforded by R.C. 718.011 ***

violates the Equal Protection clauses of the United States and Ohio Constitutions."

Notice of Appeal.

This board recently addressed nearly identical arguments with regard to

the reasonableness and constitutionality of the "games-played" allocation method used

by the city of Cleveland, in Hillenmeyer v. City of Cleveland Bd. of Review (Jan. 14,

2014), BTA No. 2009-3688, unreported. Therein, we stated:

"At the outset of our review herein, we acknowledgeappellant's constitutional claims, but make no finding inrelation thereto. Although the Ohio Supreme Court hasauthorized this board to accept evidence on coristitutionalpoints, it has clearly stated that we have no jurisdiction todecide constitutional claims. Cleveland Gear Co. v.Limbach (1988), 35 Ohio St3d 229; MCITelecommunications Corp. v. Limbach (1994), 68 OhioSt.3d 195, 198.

"Further, we find that the Cleveland ordinancesunderconsideration do not operate in contravention of any statestatute regarding municipal income taxes or Ohio caseprecedent. As such, Cleveland's method forapportionment of non-resident athletes' income `is a validexercise of the city's municipal power to tax.' Gesler v.City of Worthington Income Tax Bd. of Appeals, SlipOpinion No. 2013-Ohio-4986, T122.

"Finally, the Board of Tax Appeals has no express orimplied equity jurisdiction and therefore cannot render adetermination whether the Cleveland ordinancesconstitute a fair or reasonable method by which toapportion appellant's income for the subject years.Columbus Southern Lumber Co. v. Peck (1953), 159 OhioSt. 564." Id. at 4-5. (Footnotes omitted.)

Accordingly, we find our decision in Hillenmeyer applicable to this matter, as it relates

to the city of Cleveland's authority to tax individuals under the "games-played"

allocation method.

3 P.9

The present case presents a different factual scenario than Hillenmeyer.

Unlike the taxpayer in that matter, Mr. Saturday was never physically present in

Cleveland and was taxed as if he had taken a "sick day" for the November 30, 2008,

ganle. The city of Cleveland imposes an income tax "[o]n all qualifying wages, earned

or received *** by nonresidents of the City for work done or services performed or

rendered within the City or attributable to the City ***." Codified Ordinance

191.0501(b)(I). Central Collection Agency3 ("CCA") Article 8.02(E)(6) is

specifically applicable to nonresident professional athletes, and states, in pertinent

part:

"6. *** In the case of employees who are non-residentprofessional athletes, the deduction and withholding ofpersonal service compensation shall attach to the entireamount of compensation earned foY games that occur inthe taxing community. In the case of a non-residentathlete not paid specifically for the game plaved in ataxing community, the following apportionment formulamust be used:

"The compensation earned and subject to tax is the totalincome earned during the taxable year, includingincentive payments, signing bonuses, reporting bonuses,incentive bonuses, roster bonuses and other extras,multiplied by a fraction, the numerator of which is thenumber of exhibition, regular season, and post-seasongames the athlete played ***, or was excused fromplaying because of injury or illness, in the taxingcommunity during the taxable year, and the denominatorof which is the total number of exhibition, regular season,and post-season games which the athlete was obligated toplay under contract or otherwise during the taxable year,including games in which the athlete was excused fromplaying because of injury or illness." (Emphasis added.)

3 As we explained in Hillenmeyer, supra, quoting the city's brief, "[t]he Central Collection Agency isan entity created by Cleveland Codifed Ordinance (`C.O.") 191.2311 that collects and distributesincome taxes for its member communities. In accordance with C.O. 191.2303, the Agency isgoverned by a set of Rules and Regulations approved by the boards of income tax review of eachmember cornmunity. The Rules and Regulations along with the income tax ordinances govern incometax matters within the various member communities. The city of Cleveland is a member communityof the agency whose board of review adopted and incorporated the Agency's Rules and Regulationsinto its Income Tax Ordinance.' Appellees' Initial Brief at 2." Id. at fn. 3.

Q. P . 10

As we stated in Hillenmeyer, this board has no jurisdiction to determine

the constitutionality or reasonableness of the ordinance, including its application to

athletes absent from games due to injury or illness. Our jurisdiction is limited to a

determination of whether the MBOA's decision was proper under state law. In doing

so, we note that "[w]hen cases are appealed from a municipal board of review to the

BTA, the burden of proof is on the appellant to establish a right to the relief requested.

Cf. Alcan Aluminum Corp. v. Limbach (1989), 42 Ohio St.3d 121." Marion v. Marion

Bd ofRev. (Aug. 10, 2007), BTA No. 2005-T-1464, unreported, at 3.

Despite the factual difference between this case and Hillenmeyer, supra,

i.e., that the taxpayer at issue in that case was physically present in Cleveland for

games, we find appellants' argument is based on their arguments regarding the

"games-played" allocation method provided for in the city's ordinance and related

rules and regulations. As we did in Hillenmeyer, we find that the ordinance does not

operate in contravention of any state statute or Ohio case precedent and "is a valid

exercise of the city's municipal power to tax."4 Gesler v. City of Worthington Income

Tax Bd. ofAppeals, Slip Opinion No. 2013-Ohio-4986, ¶22.

Accordingly, the decision of the MBOA, affirming the actions of the Tax

Administrator, is hereby affirmed.

I hereby certify the foregoing to be a true andcomplete copy of the action taken by theBoard of Tax Appeals of the State of Ohioand entered upon its journai this day, withrespect to the captioned matter.

40,,.,.;. ^

A.J. Groeber, Board Secretary

4 As such, we make no findings regarding the sufficiency of appellants' evidence before the MBOAregarding Mr. Saturday's activities on the dates in question.

5 P.11

City of Cleveland Codified Ordinances, Chapter 4 191

Search Cleveland Codes LSearch j

PART ONE - ADMINISTRATIVE CODE

Title XVII - Taxation

Chapter 191 - Municipal Income Tax

Complete to June 30, 2030

CROSS REFERENCES

Power to levy income tax, 0 Const Art?N7II §3

Taxpayer's suit, Charter § 9o

PayroII deductions, RC 942

Municipal income taxes, RC Ch 718

Division of Taxation; Administrator, CO 127.30, i27.3i

191.01o1 Purpose of Levy

(a) To provide funds for the purposes of general municipal operations, procurement of fixed assets or

permanent improvements, payment of debt charges, the elimination of deficits in City funds and for all

other lawful purposes, there shall be, and is hereby levied a tax on qualifying wages as defined in this

Chapter, on net profits, and on all other taxable income, as hereinafter provided.

(b) Eight-ninths (8/9) of all monies derived from the tax so levied shaA be unrestricted and maybe applied

to any of the purposes described in division (a) of this section.

(c) One-ninth (2/9) of all monies derived from the tax so levied shali be credited to a special revenue fund

to be known as the Restricted Income Tax Fund. Moneys credited to the Restricted Income Tax Fund may

be applied to onlythe following purposes:

(1) Elimination of any deficit balance in any fund of the City, provided that such deficit balance existed as

of December 31, 1984, or exists at any subsequent time during a fiscal emergency period, as defined in

Section ii8.ot of the Revised Code; or

(2) Payment of the principal of or interest or any premium on any bond.s or notes issued by the City to

finance the construction, purchase or acquisition of fixed assets or permanent improvements; or

(3) Payment of the costs of constructing or acquiring (whether by outright purchase, lease or lease-

purchase and irrespective of whether payment is made in installments or in a lump sum) of fixed assets of

permanent improvements.

(Ord. No. 2208-04. Passed 12-13-04, eff. 12-17-04)

191.0301 Definitions Generally

For the purposes of this chapter the terms, phrases, words and their derivatives shall have the meanings

given in the next succeeding sections.

The singular shall include the plural, and the masculine shall include the feminine and the neuter.

(On3. No.2393-66.Passed 21-28-66,eH.x=-28-66)

191.03otoi Adjusted Federal Taxable Income

"Adjusted Federal Taxable Income" means a C corporation's federal taxable income before net operating

losses and special deductions as determined under the Intemal Revenue Code adjusted, as set forth in

Sections 718.o1(A)(1) of the Revised Code.

(Ord. No.22o8-q4. Passed 12-13-04,eff.12-17-04)

191.030102 Adniuiistrative Rulings

"Administrative Rulings" mean the rulings issued by the Tax Administrator, upon the reqnest of a taxpayer

or eniployer, interpreting this chapter and the Rules and Regulations. Administrative Rulings shall be

bindingand effective upon issuance as to the taxpayer or employer requesting the ruling.

(Ord. No.22o8-04. Passed 12-13o4, eff. 12-27404)

Yage 1 ot 1 y

Tax AdminEXHIBIT

12

P. 12

hitn !/racPia^x7 ln finrilnw rnmic1eVel,9nr3cnde,;1cco nartl 191.html 6/7/2011

Cit;' of Cleveland Codified Ordinances, Chapter #191

"Person" means individuals, firms, companies, business trusts, estates, trusts, partnership, limited

liability companies, associations, corporations, governmental entities, and any other entity.

With respect to provisions of this chapter that impose or prescribe a penalty, the terin "person" shall mean

the owners of an association, pass-through entity and unincorporated business entity and the officers of a

corporation.

(On3. No. 2208-04. Pa. sed 12-33-04, eff. 12-17-04)

191.0315 Place of Business

"Place of business" means any bona fide office, other than a mere statutory office, factory, warehouse or

other space which is occupied and used by the taxpayer in carrying on any business activity individually or

through one or more of his regular employees regularly in attendance.

(Ord. N. 2393-66. Passed -28-66, eff. 11-28-66)

191.031501 Qualifying Wages

"Qualifying wages" means wages, as defined in section 3121(a) of the Internal Revenue Code, without

regard to any wage limitations, adjusted as provided in division (A)(2) of Section 718.03 of the Revised

Code. "Qualifying wages" inclades compensation attributable to a nonqualified deferred compensation

plan or program as defined in section 3121(v)(2)(C) of the Internal Revenue Code and compensation

arising from the sale, exchange or other disposition of a stock option, the exercise of a stock option, or the

sale, exchange or other disposition of stock purchased by the stock option. "Qualifying wages" does not

include compensation deferred before January x, zoo4, to the extent that the deferred compensation does

not constitute "qualifying wages" when paid or distributed.

(Ord. No. 22o8-o4. Pa.ssed s2-13-04, eff. 12-17-04)

191.0316 Resident

"Resident" means an individual domiciled in the City.

(Ord. No. 2393-66. Passed 11-28-66, eff: 11-28-66)

191.0316o1 Resident Owner

"Resident owner" means an individual domiciled in the City who has an interest in an association, pass-

through entity or unincorporated business entity.

(OM. No. 2208-04. Passed x2-y3-o4, eff. i2-i7-o4)

191.0317 Resident Unincorporated Business Entity

"Resident unincorporated business entity" means an unincorporated business entity having an office or

place of business within the City.

(Oxd. No. 2393-66. Passrd 11-28-66,eff.ai-28-66)

191.031701 Rules and Regulations

"Rules and Regulations" mean the Rules and Regulations promulgated by the Tax Administrator and

approved by the Board of Review.

(Ocd. No. 2208-04- Pessed =-13-04, eff. 12-17-04)

191.031702 S Corporation

"S Corporation" means a carporation that has made an eleetion under Subchapter S of Chapter i of Subtitle

A of the Internal Revenue Code for its taxable year.

(Ordl. No. 22o8-o4. Passed i2-r3-o4, eff. n-y7-04)

191.031703 State

"State" means the State of Ohio.

(Ord. No. 2208-o4. Pessed M-13-04, eff. 12-17-04)

191.031704 Tax Coninaissioner

"Tax Commissioner" means the Tax Commissioner of the State of Ohio>

(Ord. No. 2208-04. Passed 12-13-04, eff. 12-17-04)

191.0318 Taxable Income

"Taxable income" means all qualifying wages, net profits and all other income from whatever source

derived set forth in Section 191.0501, and the Riiles and Regulations as taxable.

(Ord. No. 2208-04. Passed 12_13-04. eft_ 12-27-04)

191.0318o1 Taxable Situs

'raxable Situs" means that portion of a taxpayer's net profits attributable to the City where the taxpayer

conducts a business or profession both within and without the City, determined in accordance with Section

Page 4 of 19

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liitn°//racala-,RT in frnrllaW rnrrefr lr vPlanrlrnriac/rr n nnrtl 191 htmj fi/7/2(31 1

^ Cleveland Codified Ordinances, Chapter #191

718.02 of the Ohio Revised Code.

(Ord. No. 2208-04. Passed 12-13-04, eff. 12-17-o4)

191.0319 TaxableYear

"Taxable year" means the corresponding tax reporting period as prescribed for the taxpayer under the

Internal Revenue Code.

(Ord. No. 2208-04. Passed 12-13-04, eH. 12-17-o4)

191.032o Taxpayer

"Taxpayer" means a person subject to the tax imposed by this c,hapter, whether the tax is imposed on the

taxable income of the entity in the hands of the entity or on the taxable income from the entity in the hands

of the owmers of the entity. "Taxpayer" does not include any person that is a disregarded entity or a

qualifying subchapter S subsidiary for federal income tax purposes, but "taxpayer" includes any other

person who owns the disregarded entity or qualifying subcbapter S subsidiary.

(Ord. Na. 2208-04. Passed 12-13-04, eff. 32a7-04)

y92•0321 Unineorporated Business Entity

"Unincorporated Business Entit}" means either an "association," "pass-through entity" or "corporation,"

detemlined by the treatment afforded such entity for federal income tax purposes.

(Ord. Nb. 2208-04. Passed 12-13-04, eff. 12-17-04)

i9i.ct5ol Rate and Taxable Income

For the purposes specified in Section 191.oio1, on and after January 1, 1967, an annual tax of one-half of

one percent (o.5%) per annum shall be imposed upon the hereinafter specified income; provided that on

an after July 1, 1968, the rate of tax shall be a total of one percent (i%) per annum; and that on and after

March 1, 1979, the rate of such tax shall he a total of one and five-tenths percent (1.5%) per annum; and

that on and after January 1, 1981, the rate of tax shall be two percent (2%) per annum. Such tax shall be

imposed upon all taxable income as follows:

(a) On al2 qualifying wages, net profits and other taxable income earned and/or received on and after

January 1,1967 by residents of the City;

(b) (1) On all qualifying wages, earned and/or received on and after January 1,1967, by nonresidents of theCity for work done or services performed or rendered within the City or attribltable to the City; on all net

profits eamed and/or received by a nonresident from the operation or conduct of any business or

profession within the City; and on all other taxable income earned and/or received by a nonresident

derived from or attributable to sources, events or transactions within the City;

(2) For nonresidents employed at a place of business or profession within the City, only those qualifying

wages earned and/or received by such nonresident that are specifically attributable to a place or location

worked that is outside the City will be treated as earned outside the City;

(c) (i) On the portion attributable to the City of the net profits earned and/or received on and after January

1,1967, of all resident associations, pass-through entities or other lmincorporated business entities treated

as a pass-through entity for federal income tax purposes or professions or other activities, derived from

sales made, work done, services performed or rendered, and business, or other activities conducted in the

City and/or derived from sales made, work done, services performed or rendered and business or other

activities attributable to the City;

(2) On the portion of the distributive share of the net profits earned and/or received on and after January

1, 1967, of a resident partner or owner of a resident association, pass-through entity or other

unincorporated business entity treated as a pass-through entity for federal income tax purposes not

attn'butable to the City and upon which the City's income tax has not been imposed and levied;

(d) (1) On the portion attributable to the City of the net profits eamed and/or received on and after

January 1, 1967, of all nonresident associations, pass-through entities or other unincorporated business

entities treated as a pass-through entity for federal income tax purposes, professions or other activities,

derived from sales made, work done, services performed or rendered, and business, or other activities

conducted in the City and/or derived from sales made, work done, services performed or rendered and

business or other activities attributable to the City, whether or not such association, pass-through entity or

other unincorporated business entity treated as a pass-through entity for federal income tax purposes hasan office or place of business in the City;

(2) On the portion of the distributive share of the net profits earned and/or received on and after January

1, 1967, of a resident partner or owner of a nonresident association, pass-through entity or other

unincorporated business entity treated as a pass-through entity for federal income tax purposes not

attributable to the City and upon w4ich the City's income tax has not been imposed and levied from

wherever such business is located;

iitt"•i/r-arcmlaXxr lr flinrilaexr ^nm/^lp^ralanrlrnrls^c/rrn nartl 1^I ht'rrtl

Page5of13

P.14

6/7/2011

CENTRAL COLLECTION AGENCY

RULES AND REGULATIONS

ARTICLE 3:00 IMPOSITION OF TAX

3:01 Resident Employee

A. In the case of residents of member taxing municipalities, an annual tax (see tax rateschedule) is imposed on all salaries, wages, commissions, other income, and othercompensation earned and received, earned and accrued, or earned and deferred duringthe effective period of the ordinance.

For the purpose of determining the tax on eamings of resident taxpayers under the rateand income taxable section of the ordinance, the source of earnings and the place orplaces in or at which the services were rendered are immaterial. All such earningswherever eamed are taxable. The location of the place from which payment is made, orwhere payment is received is immaterial.

B. The following are items subject to the tax imposed by the rate and income taxablesections of the member communities' ordinances.

1. Salaries, wages, bonuses and incentive payments earned by an individual whetherdirectly or through an agent, and whether in cash, or in property, and whetherreceived or deferred, for services rendered during the tax period as:

a. An officer, director or employee of a corporation (including charitable and othernon-profit organizations), joint stock associations, or joint stock company, or anyother type of entity;

b. An employee (as distinguished from a partner, member or owner) of apartnership, limited partnership, S Corporation, Limited Liability Partnership andLimited Liability Corporation or any form of unincorporated enterprise;

c. An employee (as distinguished from a proprietor) of a business, trade, orprofession conducted by an individual owner;

d. An officer or employee (whether elected, appointed or commissioned) of theUnited States Government or of a corporation created and owned or controlledby the United States Government, or any of its agencies; or of the State of Ohioor any of its political subdivisions or agencies thereof; or any foreign country ordependency except as provided in the section of the ordinance indicatingsources of income not taxable.

e. An employee of any other entity or person, whether based upon hourly, daily,weekly, semi-monthly, annual, unit of production or piecework rates; and whetherpaid by an individual, partnership, association, corporation (including charitableand other non-profit corporations and associations), governmental administration,agency, authority, board, body, branch, bureau, department, division,subdivision, section or unit or any other entity.

2. Commissions earned by a taxpayer whether directly or through an agent and whetherin cash or in property for services rendered during the effective period of theordinance, regardless how computed or by whom or wheresoever paid.

a. If the amounts received as a drawing account exceed the commissions earnedand the excess is not subject to the demand of the employer for repayment, thetax is payable on the amounts received as a drawing account.

b. Amounts received from an employer for expenses and used as such by theindividual receiving them are not deemed to be compensation if the employerdeducts such expenses or advances as such from his gross income for thepurpose of determining his net profits taxable under Federal law, and theemployee is not required to include such receipts as income (or has directly off-setting business expenses) on his Federal Income Tax return.

P.15

c. If commissions are included in the net earnings of the trade, business,profession, enterprise, or activity, carried on by an unincorporated entity of whichthe individual receiving such commission is owner or part owner and thereforesubject to the tax on the net profits provision of the ordinance, they shall not betaxed under the provisions relating to salaries, wages, or commissions earned.

3. Fees, unless such fees are properly included as part of the net profits of a trade,business, profession, or enterprise regularly carried on by an unincorporated entityowned or partly owned by said individual (i.e. fees which are taxable are those feesreceived by a director or officer of a corporation).

4. Other compensation and other income shall include but are not limited to:

a. Tips received by waiters, waitresses and others;b. Bonuses;c. Gifts and gratuities in connection with employment;d. Compensation paid to domestic servants, casual employees and other types of

employees;e. Benefits resulting from employers assuming a tax;f. Fellowships, grants, or stipends paid to a graduate student in the full amount

except that any amount allocated in writing for tuition, books and laboratory feesshall be excluded;

g. Dismissal pay which is demandable as a mafter of right by virtue of the contractof employment;

h. Incentive payrrierits;i. Contributions by employees andlor employers on behalf of employees to

retirement plans are not deductible by such employee. If such contributions arededucted by an employer from the earnings of an employee, such amounts aresubject to withholding tax;

j. If an employer pays into a retirement or deferred compensation plan on behalf ofan employee in lieu of paying said amount as wages, said payments areconsidered additional compensation to the employee and are subject towithholding tax.

k. Contributions by employers to a pension, annuity, retirement or deferredcompensation plan, including simplified pension plans and similar plans, are °deemed to be other compensation subject to withholding; o

I. Income received on account of covenants not to compete;m. Lottery winnings, gambling and gaming winnings, sports winnings;n. Severance pay;o. Jury fees, if not paid over to a taxpayer's employer;p. Contributions made by or on behalf of employees to cafeteria plans and profit

sharing plans;q. Income deemed taxable per Federal Code Section 89 or its substantial

equivalent;r. Ordinary gains reported on Federal Form 4797 or its substantial equivalent;s. Punitive damages on account of personal injury;t. Hobby income

5. Vacation, sickness, or any other types of payments made under a wage or salarycontinuation plan including `sub pay received from a union or other third party in lieuof wages during periods of absence from work are taxable when paid. Paymentsmade by an employer to an employee during periods of absence from work aretaxable when paid and at the tax rate in effect at the time of payment. Sick leave orsick pay, disability pay, vacation pay, terminal pay, supplemental unemployment pay,and severance pay may not be excluded from taxable income.

P.1b

Payments made to an employee under a wage continuation plan, either directly or byan insurance company or another third party may not be excluded from taxableincome. Such payments are attributable to the city of employment.

6. Where compensation is paid or received in property, its fair market value at the timeof receipt shall be subject to the tax and to withholding. Board, lodging and similarcompensation shall be included in eamings at fair market value.

7. Group term life insurance protection not paid by the employee or if the coverage paidby the employer exceeds $50,000.00.

8. Stock options given as compensation. When exercised, regardless of the treatmentby the Internal Revenue Service, the employer is required to withhold on thedifference between the fair market value and the amount paid by the employee.

Employers must withhold municipal income tax on the exercise of stock options(qualified or nonqualified) if the employee acquired the option as compensation or inlieu of wages.

9. Losses from the operation of a business or profession are not deductible fromemployee eamings. Rental and business losses may not be used to offset wageincome.

10. In the case of domestics and other employees whose duties require them to live attheir place of employment or assignment, board and lodging shall not be consideredas taxable compensation.

11. Intrastate, over-the-road drivers and others with similar situations reporting to aterminal, office, etc. in a member community must have a minimum of 25% of wageswithheld and allocated to the city where their terminal, oiice, etc. is located.

12. Income generated from any illegal Federal, State or municipal transaction.

3:02 Non-Resident Employee

A. In the case of individuals who are not residents of the taxing community there is imposedunder the ordinance, a tax (see tax rate schedule) on all salaries, wages, commissionsand other compensation earned and received, earned and accrued, or earned anddeferred on and after the effective date of the ordinance for work done or servicesrendered or performed within said taxing community whether such compensation orremuneration is received or earned directly or through an agent and whether paid in cashor in property. The location of the place from which payment is made is immaterial.

B. The items subject to tax under the rate and income taxable section of the ordinance arethe same as those listed and defined in Article 3:01 B. hereof. For the methods ofcomputing the extent of such work or services performed within a taxing community, incases involving compensation for personal services partly within and partly without saidtaxing community, See Article 8:02 hereof.

3:03 Resident Unincorporated Business

A. In the case of resident unincorporated businesses, professions, enterprises, undertakingsor other activities conducted, operated, engaged in, prosecuted or carried on, irrespectiveof whether such taxpayer has an office or place of business in his resident community,there is imposed an annual tax (see tax rate schedule) on the net profits eamed duringthe effective period of the ordinance attributable to the resident community determined bythe separate accounting method or formula provided for in Article 4:00 hereof, derivedfrom sales made, work done or services performed or rendered and business or otheractivities conducted in a resident community.

B. The tax imposed on resident associations or other unincorporated entities is upon theentities rather that the individual members or owners thereof. (For tax on that part of a

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C. Whenever the ordinance or these regulations require filing a return or payment of tax tothe Administrator, or to the taxing community, such returns and/or payments for themunicipalities in the Central Collection Agency shall be made directly to The CentralCollection Agency, 1701 Lakeside Avenue, Cleveland, OH 44114.

8:02 Withholding Collection at Source

A. It is the duty of each employer who employs one or more persons on a salary, wage,commission, or other compensation basis to deduct each time any such compensation ispaid to or earned and deferred by an employee subject to the ordinance, the tax at thecurrent rate from such salary, wage, bonus, incentive payment, commission or othercompensation due by said employer to said employee, together with the tax at the currentrate from the tips or gratuities reported to said employer by each said employee for SocialSecurity, Medicare or Federal Income Tax purposes and shall make a return and pay tothe Administrator the amount of taxes so deducted.

The tax shall be calculated on the gross amount of all salaries, wages, bonuses,incentive payments, commissions or other form of compensation paid to or earnedand deferred by an employee who is a resident of the taxing community regardless ofthe place where the services are rendered.

The tax shall be calculated on the gross amount of all compensation paid to orearned and deferred by an employee who is a non-resident of the employmentcommunity for services rendered, work performed, or other activities engaged in toearn such compensation within said employment community.

3. For those employees who do not pay for personal use, including commuting fees, ofa vehicle owned or leased by an employer, employers are required to withhold on thevalue of an employee's non-cash compensation.

B. All employers within or doing business within a taxing community are required to makethe collections and deductions specified in this Article, regardless of the fact that theservices on account of which any particular deduction is required as to residents of thetaxing community were performed at a place of business of any such employer situatedoutside said taxing community.

Employers who do not maintain a permanent office or place of business in the taxingcommunity, but who are subject to tax on net profits under the ordinance, are consideredto be employers within a taxing community subject to the requirement of withholding.

C. The mere fact that tax is not withheld will not relieve the employee of the responsibility offiling a return and paying the tax on the compensation earned.

D. All individuals, businesses, employers, brokers or others doing business who engagepersons, either on a commission basis or as independent contractors, sub-contractors, orcontract employees who are not subject to withholding shall indicate the total amount ofearnings, payments, commissions and bonuses to residents of the taxing community (orto non-residents who do business in the taxing community) on copies of Federal Form1099 or successor form, or shall atfach a list which shall indicate social security numbers,names, addresses and amounts paid.

E. In the case of employees who are non-residents of the taxing community, the amount tobe deducted is the current rate of tax on the compensation paid or eamed and deferredwith respect to personal services rendered in said taxing community.

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Where a non-resident receives compensation for personal services, rendered orperformed partly within and partly outside a taxing community, the vvithholding employershall withhold, report and pay the tax on that portion of the compensation which is earnedwithin said taxing community in accordance with the following rules of apportionment:

1. Employees Compensated on an Hourly, Daily, Weekly, or Monthly Basis.

a. General RuleThe deduction and withholding shall atfach to the personal service compensationfor the exact amount of compensation paid or earned and deferred for servicesperformed in a taxing community, when such exact amount of compensation canbe established. When no such exact determination of amounts earned or derivedin the taxing community is possible, the income of employees who arecompensated on an hourly, daily, weekly or monthly basis must be apportioned tothe taxing community as follows:

Multiplying the gross income, wherever eamed from the employment whichincludes employment carried on in the taxing community, by a fraction, thenumerator of which is the number of days spent working in the taxing communityand the denominator of which is the total working days (including holidays,vacation days, sick days and paid or unpaid leave).

The total number of working days should not exceed 260 days, unless for traveloutside the United States. In those cases in which the employee is required totravel outside of the United States, the total weekend days in which the employeewas required to work while outside of the United States must be added to both thenumerator and the denominator.

The result is the amount of the non-resident's income allocable to the taxingcommunity.

b. Apportionment Where Employee Performs Services In More Than One TaxingCommunity Each Day.

In the case of an employee compensated hourly, daily, weekly, or monthly, whoregularly performs services in more than one taxing community each day, incomeis apportioned to the particular taxing community by multiplying the gross income,wherever earned, from the employment which includes employment carried on inthe particular taxing community, by a fraction, the numerator of which is thenumber of hours spent working in the particular taxing community and thedenominator of which is the total number of working hours.

2. SalespersonsIf the non-resident is a salesman, agent or other employee whose compensation onthe basis of commissions depends directly on the volume of business transacted byhim, the deduction and withholding shall attach to the portion of the entirecompensation which the volume of business transacted by the employee within thetaxing community bears to the volume of business transacted by him within andoutside of said taxing community.

3. Real Estate AgentsFor non-resident licensed real estate agents who are non-employees or independentcontractors (i.e. non-employee agents, or independent agents) the municipal incometax is imposed on any income (commission or otherwise) earned as a result of thesale of real property located within a taxing community. The tax is imposed on theagent's income resulting from the sale of property that is physically located within thetaxing community, regardless of where the office or offices of the agent is or arelocated.

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For non-resident or resident licensed real estate agents who are employees of a realestate brokerage or real estate company, the municipal income tax is imposed onany salary, commission or other compensation earned, as a result of the employer'smaintenance of an office in the taxing community. See, CCA Rules and Regulations,Article 8:02 Withholding Collection at Source.

For Resident real estate agents who are non-employees or independent contractors(i.e. non-employee agents, or independent agents) the municipal income tax isimposed on any income (commission or otherwise) earned as a result of the sale ofreal property located within the municipality of residence or eamed as a result of thesale of real property located outside the municipality of residence (subject to the taxcredits given by the municipality) regardless of where the office or offices of the agentis or are located.

4. Over the Road DriversOver the road intrastate drivers and other similarly situated employees reporting to aterminal, warehouse, or office in a taxing community must have a minimum of 25% ofwages withheld and allocated to the taxing community where the terminal,warehouse, or office is located.

5. Self-Employed Non-Residents Carrying on a Trade or Business Within a TaxingCommunity and Elsewhere. See Article 4:00, et seq., hereof.

6. Professional Athletes.In the case of employees who are non-resident professional athletes, the deductionand withholding of personal service compensation shall attach to the entire amount ofcompensation eamed for games that occur in the taxing community. In the case of anon-resident athlete not paid specifically for the game played in a taxing community,the following apportionment formula must be used:

The compensation eamed and subject to tax is the total income earned during thetaxable year, including incentive payments, signing bonuses, reporting bonuses,incentive bonuses, roster bonuses and other extras, multiplied by a fraction, thenumerator of which is the number of exhibition, regular season, and post-seasongames the athlete played (or was available to play for his team, as for example, withsubstitutes), or was excused from playing because of injury or illness, in the taxingcommunity during the taxable year, and the denominator of which is the total numberof exhibition, regular season, and post-season games which the athlete wasobligated to play under contract or otherwise during the taxable year, includinggames in which the athlete was excused from playing because of injury or illness.For purposes of these Rules and Regulations, exhibition games include only thosegames played before a paying audience, and played against another professionalteam from the same professional league.

In the case of non-resident salaried athletic team employees who are notprofessional athletes, deduction and withholding shall attach to personal serviceincome in the manner set forth in Paragraph 1 a., supra.

7. Entertainersf.a. Any person who shall employ or contract for the services of any entertainer,

entertainment act, sports event, promotional booth, special event, band,orchestra, rock group, theatrical performance, lecturers, speakers, etc. (this is notan exhaustive list of types of entertainers required to withhold, report or pay overa municipal income tax) shall be deemed to be 'an employer and shall, for

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purposes of the collection of the income tax, be required to withhoid, report andpay over to the Administrator the tax at the applicable rate on the gross amountso paid on the completion of the engagement, said reports to be on formsprovided by the Administrator.

b. Any person who, acting as a promoter, booking agent or employer, engages theservices of or arranges the appearance of any entertainer, entertainment act,sports event, band, orchestra, rock group, theatrical performance, etc., in thetaxing community, and who makes any payment arising from said appearanceshall be deemed to be an employer and shall, for purposes of the collection ofthe income tax, be required to withhold, report and pay over to the Administratorthe tax at the applicable rate, on the gross amount so paid on the completion ofthe engagement, said reports to be on forms provided by the Administrator.

c. Any person who rents facilities to any entertainer, entertainment act, sportsevent, promotional booth, special event, band, orchestra, rock group, theatricalperformance, etc. for use in performing services in the taxing community, andwho makes any payment arising from said use of facilities shall be deemed to bean employer and shall, for purposes of the collection of the income tax, berequired to withhold, report and pay over to the Administrator the applicable taxat the applicable rate hereof based on the gross amount so paid on completion ofthe engagement, said reports to be on forms provided by the Administrator.

d. The income of non-resident entertainers is the entire amount received forperformances, engagements or events that occurred in the taxing community. Inthe case of a non-resident entertainer who is not paid specifically for aperformance, the following apportionment formula must be used:

The income earned and subject to the tax is the total annual compensationmultiplied by a fraction, the numerator of which is the number ofperformances the entertainer performed (or was available to perform, as,for example with understudies) in the taxing community, and thedenominator of which is the total number of performances which theentertainer was obligated to perform under contract or otherwise duringthe taxable year.

8. Excluded Personal ServicesThe deduction and withholding obligation shall attach in the case of any personalservice compensation for labor or personal services performed in the taxingcommunity irrespective of the residence of the employee (or, in the case of anentertainer, irrespective of the residence of the promoter, booking agent or lessor),the place in which the contract for the labor or service was made, or the place or timeof payment; except that such compensation shall be deemed not to be incomederived within the taxing community if:

a. The compensation for such labor or services does not exceed a gross amount of$50.00 in any calendar year; or

b. There is only occasional entry into a taxing community by a non-residentemployee who performs the regular duties for which he is employed almostentirely, or entirely outside of such municipality, but also enters such municipalityfor the purpose of receiving instruction, reporting, accounting, etc. incidental tohis duties. This exclusion does not apply to professional athletes or teams, or toentertainers as defined above.

9. Employee ReportsIn apportioning the earnings of an employee, an employer may accept the writtenreports of his employee as to any of the items set forth in 1 a., lb., 2, 3, and 10hereof. However, the employer shall be responsible for any material error inallocation as to employment within a taxing community. -

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Lawriter - ORC - 718.01 1 tncome subject to tax - personal services perforined by nonresident on twelve or fewer days. Page I of 1

718.011 Income subject to tax - personal services performed bynonresident on twelve or fewer days.

On and after January 1, 2001, a municipal corporation shall not tax the compensation paid to a

nonresident individual for personal services performed by the individual in the municipal corporation on

twelve or fewer days in a calendar year unless one of the following applies:

(A) The individual who is an employee of another person; the principal place of business of the

individual's employer is located in another municipal corporation in this state that imposes a tax

applying to compensation paid to the individual for services performed on those days; and the

individual is not liable to that other municipal corporation for tax on the cornpensation paid for suchservices.

(B) The individual is a professional entertainer or professional athlete, the promoter of a professional

entertainment or sports event, or an employee of such a promoter, all as may be reasonably definedby the municipal corporation.

Effective Date: 2000 HB483 09-21-2000; 2000 SB287 12-21-2000

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